My research spans dynamic contracting, international finance, and financial intermediation. My most recent work on financial intermediation analyzes the interplay between financial regulation and risk-taking incentives in the financial sector. The corresponding papers are published in top general interest journals (Econometrica) and leading field journals such as the Journal of Economic Theory, the Journal of Financial Economics and the Journal of International Economics. My favorite papers are “Impatience versus incentives,” “Markup cycles, dynamic misallocation, and amplification," and ''Rating agencies in the face of regulation.'' I have been a board member of the Finance Theory Group since September 2016. I have achieved teaching excellence at Berkeley Haas (Median score ≥ 6 / 7) in every section since 2010 across a variety of degree programs (undergraduate, M.B.A. and Ph.D.).
(7) "Target Revaluation after Failed Takeover Attempts - Cash versus Stock," 2016, joint with Ulrike Malmendier and Farzad Saidi, Journal of Financial Economics, 119, 92-106. Online Appendix
Main insight: Capital markets interpret a cash offer as a economically large and positive signal about the fundamental value of target resources (in contrast to a stock offer). We expose a significant look-ahead bias affecting the previous literature on this topic.
Main insight: We study the dynamics of contracts in repeated principal-agent relationships with an impatient agent. Despite the absence of exogenous uncertainty, Pareto-optimal dynamic contracts generically oscillate between favoring the principal and favoring the agent.
(5) “Markup cycles, dynamic misallocation, and amplification," 2014, joint with Christine Parlour & Johan Walden, Journal of Economic Theory, 154, 126-161.
agencies in the face of regulation,'' 2013, joint with Christian C. Opp & Milton Harris, Journal of Financial Economics, 108, 46-61.
risk and technology,'' 2012, Journal of Financial Economics, 103, 113-129.
(2) "Tariff wars in a Ricardian model
with a continuum of goods," 2010, Journal of International
Economics, 80, 212-225.
(1) "Rybczynski's theorem in the
Heckscher-Ohlin world - anything goes," 2009, joint with Hugo
Sonnenschein & Christis Tombazos, Journal of International Economics, 79, 137-142.
(8) “ Only time will tell: a theory of deferred compensation,” August 2016, joint with Florian Hoffmann and Roman Inderst, Presentation Slides (Introduction + conclusion to be updated).
Abstract: Abstract: We characterize optimal contract design in settings where the principal observes informative signals about the agent's initial action over time. Under bilateral risk-neutrality and limited liability of the agent, all relevant features of a signal process can be encoded in a single "informativeness" function. This function is increasing in time and fully captures the notion of "only time will tell." We then show how the principal uses the timing dimension of the compensation contract to extract rents from the agent via the use of more informative signals. Optimal contracts trade off the rent-extraction benefit of deferral with the associated costs resulting from the agent's relative impatience. Our framework lends itself to evaluate the effects of recent regulatory proposals in the financial sector mandating the deferral of bonus payments and the use of claw-back clauses.
(9) “Paper on bank capital regulation, risk-taking, and borrower heterogeneity (Title TBD),” September 2015, joint with Milton Harris and Christian Opp, Presentation Slides.
See Video for intuition of graphical illustration of main results.
Abstract: Our paper argues that recognizing firm heterogeneity is key to understanding the system-wide implications of bank capital requirements on credit supply and bank risk-taking. We propose a framework that can flexibly account for a cross-section of borrowers that differ along investment opportunities, regulatory risk signals, and their dependence on bank finance. Banks can serve a socially beneficial role by financing borrowers that are credit rationed by public capital markets, but their access to public guarantees creates socially undesirable risk-shifting incentives. In line with recent empirical evidence from Europe, our model predicts that banks endogenously specialize in financing different segments of the borrower distribution to optimally exploit such guarantees. Increases in system-wide capital requirements may lower banks' incentives to engage in excessive risk taking but may also reduce credit extended to bank-dependent firms that are relatively safe. The associated net effects on financial stability and allocative efficiency depend on the cross-sectional distribution of firms, in particular, firms' ability to access public markets and regulators' ability to discern bank dependence.
Work in progress:
(10) “Regulatory reform and risk-taking: replacing ratings,” September 2014, joint with Bo Becker, Presentation slides. (major update soon, new data!)
Abstract: We expose that a reform of capital regulation for insurance companies in 2009/2010 eliminated (to a first-order approximation) capital requirements for holdings of non-agency mortgage backed securities. Post reform, insurance companies allocate 54% of their purchases of new MBS issues toward non-investment grade assets (as opposed to 6% pre reform), a large increase in risk-taking.