1) financial regulation, financial intermediaries (banks, rating agencies)
2) contracting theory: dynamic contracting, static contracting
3) international/ macro: trade theory, DSGE models
"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,” March 2013, joint with John Zhu, Revise and Resubmit 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).
“A Theory of Dynamic Resource Misallocation and Amplification," October 2013, joint with Christine Parlour and Johan Walden, Revise and Resubmit Journal of Economic Theory.
“Macroprudential Bank Capital Regulation - Local vs. Global Optima,” October 2013, 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 other investors, such as institutions in the shadow-banking system. Our analysis reveals that competition can induce a non-monotonic relationship between regulatory capital requirements and banks' risk taking, that is, we show conditions under which there exist ranges of increases in capital requirements that cause more banks in the economy to engage in value-destroying risk-shifting. In our general equilibrium setting capital requirements endogenously affect both the banking sector's total funding capacity and banks' ranking of investment strategies. Competition for good
“Regulating Deferred Incentive Pay,” October 2013, 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. We provide concrete conditions on economic primitives that make mandatory deferral socially (un)desirable.
“Replacing Ratings,” July 2013, joint with Bo Becker.
Abstract: Since the financial crisis, replacing ratings has been a key item on the regulatory agenda. We examine a unique change in how capital requirements are assigned to insurance holdings of mortgage-backed securities. The change replaced credit ratings with regulator-paid risk assessments by Pimco and BlackRock. We find no evidence for exploitation of the new system for trading purposes by the providers of the credit risk measure. However, replacing ratings has led to significant reductions in aggregate capital requirements: By 2012, equity capital requirements for structured securities were at $3.73bn compared to of $19.36bn if the old system had been maintained. These savings reflect the new measures of risk, and new rules allowing companies to economize on capital charges if assets are held below par. These book-value adjustments dilute the predictive power of the underlying risk measures, Our results are consistent with a regulatory change being largely driven by industry interests rather than maintaining financial stability.
“Cash is King - Revaluation of Targets after Merger Bids”, December 2012, joint with Ulrike Malmendier and Farzad Saidi.
Abstract: We provide evidence that a significant fraction of the returns to merger announcements reflects target revaluation rather than the causal effect of the merger. In a sample of unsuccessful merger bids from 1980 to 2008, we find that targets of cash offers are revalued by 15% after deal failure, which is a sizeable portion of the average announcement effect of 25%. In contrast, stock targets revert to their pre-announcement levels. These results hold for deals where failure is exogenous to the target's stand-alone value. We show that the differential revaluation of cash and stock targets is not explained by differences in future takeover activity. We also find that the values of cash bidders revert to pre-announcement levels, while stock bidders fall below. Our revaluation estimates imply economically large mismeasurement when using naive announcement-based estimates of the causal effect of mergers.
work in progress:
"Industrial Asset Pricing," joint with Christine Parlour and Johan Walden.
Project on "Systematic risk, ratings, and the structuring of securities."
additional references :
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