1) financial regulation, financial intermediaries (banks, rating agencies)
2) contracting theory: dynamic contracting, static contracting
3) international/ macro: trade theory, DSGE models
publications and forthcoming papers
“Markup cycles, dynamic misallocation, and amplification," 2014, joint with Christine Parlour & Johan Walden, Journal of Economic Theory , forthcoming.
''Rating agencies in the face of regulation,'' 2013, joint with Christian C. Opp & Milton Harris, Journal of Financial Economics, 108, 46-61.
"Expropriation risk and technology,'' 2012, Journal of Financial Economics, 103, 113-129.
"Tariff wars in a Ricardian model with a continuum of goods," 2010, Journal of International Economics, 80 (2), 212-225.
"Rybczynski's theorem in the Heckscher-Ohlin world - anything goes," 2009, joint with Hugo Sonnenschein and Christis Tombazos, Journal of International Economics, 79 (1), 137-142.
“Impatience vs. incentives,” February 2014, joint with John Zhu, 3rd round R&R Econometrica.
Abstract: This paper studies the long-run dynamics of Pareto-optimal self-enforcing contracts in a repeated principal-agent framework with an impatient agent. Impatience concerns encourage contracts to favor the principal in the long run, whereas incentives concerns encourage contracts to favor the agent in the long run. Optimal dynamic contracts generically oscillate between favoring the principal and favoring the agent despite the absence of uncertainty or any need to randomize. The amplitude of oscillation relates to the sensitivity of the agent's incentive problem to monetary transfers. Arbitrarily low participation constraints of the agent or the principal may fundamentally change contract dynamics. Our results help reconcile the opposing predictions of Ray (2002) and Lehrer and Pauzner (1999).
“Target Revaluation after Failed Takeover Attempts - Cash versus Stock”, June 2014, joint with Ulrike Malmendier and Farzad Saidi, 2nd round R&R Journal of Financial Economics.
Abstract: Cash- and stock-financed takeover bids induce strikingly different target revaluations. We exploit detailed data on unsuccessful takeover bids between 1980 and 2008, and show that targets of cash offers are revalued by +15% after deal failure, whereas stock targets return to their pre-announcement level. Employing the news-search classification of Savor and Lu (2009), we find that this result holds when failure is exogenous to the target's stand-alone value. The differences in revaluation do not revert over longer horizons. We analyze the role of future takeover activities in explaining these differences. Compared to a set of matched control firms, the targets of failed cash and stock offers are both more likely to be acquired over the following 8 years. Between cash and stock targets, however, we find no differences in the timing or the value of future offers. Our results suggest that cash bids reveal positive information about the stand-alone value of the target.
“Macroprudential bank capital regulation in a competitive financial system,” July 2014, joint with Milton Harris and Christian Opp.
Abstract: We propose a tractable general equilibrium framework to analyze the effectiveness of bank capital regulations when banks face competition from outside investors. Our analysis shows that increased competition can not only render previously optimal bank capital regulations ineffective but also imply that, over some ranges, increases in capital requirements cause more banks in the economy to engage in value-destroying risk-shifting. To avoid this perverse outcome, the regulator has to set capital requirements high enough, so that risk-shifting activities become less profitable from a banker's private perspective than socially valuable banking activities. Our model generates a set of novel implications that highlight the dependencies between optimal bank capital regulation and the comparative advantages of various institutions in the financial system.
“Regulatory reform and risk-taking: replacing ratings,” July 2014, joint with Bo Becker.
Abstract: We analyze a reform of insurance companies’ capital requirements for mortgage-backed securities occurring in the context of the regulatory overhaul of the financial system after the recent financial crisis. First, expected loss assessments provided by Pimco and BlackRock replace credit ratings as inputs to capital regulation. Second, using this new input, the redesigned system of capital regulation ensures capital buffers sufficient to withstand expected losses, but insufficient to protect against adverse aggregate shocks: bonds that are recorded at market value are treated as riskless and require (virtually) no capital. As a consequence, by 2012, aggregate capital requirements for mortgage-backed securities have been reduced from $19.36bn (if the previous system had been maintained) to $3.73bn. Exploiting the differential capital regulation of corporate bonds and structured securities post regulatory reform, we provide evidence that insurance companies’ risk taking appears to be both distorted and increased in response to the new regulation.
“Regulating deferred incentive pay,” March 2014, joint with Florian Hoffmann and Roman Inderst.
Abstract: Our paper evaluates recent regulatory proposals mandating the deferral of bonus payments and claw-back clauses in the financial sector. We study a broadly applicable principal agent setting, in which the agent exerts effort for an immediately observable task (acquisition) and a task for which information is only gradually available over time (diligence). Optimal compensation contracts trade off the cost and benefit of delay resulting from agent impatience and the informational gain. Mandatory deferral may increase or decrease equilibrium diligence depending on the importance of the acquisition task. In particular, higher acquisition incentives make it more likely that deferral regulation increases equilibrium diligence. Our results imply concrete conditions on economic primitives that make mandatory deferral socially (un)desirable.
work in progress:
"Industrial Asset Pricing," joint with Christine Parlour and Johan Walden.
additional references :
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