Professor of Finance
PUBLICATIONS
Quarterly Journal of Economics, 2024 (with Paul Gertler and Catherine Wolfram)
A new form of lending using digital collateral has recently emerged, most prominently in low and middle income countries. Digital collateral relies on ``lockout" technology, which allows the lender to temporarily disable the flow value of the collateral to the borrower without physically repossessing it. We explore the effect of this new form of credit both in a model and in a field experiment [Slides] [NBER Working Paper] [NBER Digest] [VoxDev]
Forthcoming at AEJ Microeconomics (with Dong Wei)
Price discrimination and information discrimination are compliments; allowing for one activates a role for the other. The optimal mechanism features both: buyers with higher private values face lower prices and observe a positive signal about product quality more frequently. [Slides]
The Journal of Finance, 2024 (with Brendan Daley and Thomas Geelen)
Due diligence is common practice prior to the execution of corporate or real estate transactions, yet often ignored by standard models. We propose a model of due diligence and analyze its effect on equilibrium quantities. We show that the acquirer engages in “too much” due diligence relative to the social optimum. Nevertheless, allowing for due diligence can improve both total surplus and the seller’s payoff compared to a setting with no due diligence. We use our framework to explore the timing of due diligence, bidder heterogeneity, and break-up fees. [Slides] [Working Paper]
The Review of Financial Studies, 2023 (with Brendan Daley and Victoria Vanasco)
We investigate the role of scrutiny (e.g., credit ratings, analyst recommendations, or mandatory disclosures) on the security designed by a privately-informed issuer. The model predicts that issuers will design informationally sensitive securities (i.e., levered equity) when scrutiny is sufficiently intense. Otherwise, issuers opt for a standard debt contract. Scrutiny increases efficiency by decreasing issuers' reliance on retention to signal quality, and perhaps counterintuitively, decrease price informativeness. [Working Paper]
AEJ Microeconomics, 2022 (joint with William Fuchs and David Levine)
We examine supply-side barriers to the product-adoption puzzle in a setting with limited contract enforcement. The optimal self-enforcing arrangement provides vendors with a line of credit and a fixed price for additional units. We test this arrangement in the field. [Slides], [Working Paper]
Media Coverage: Freakonomics, The Economist
Journal of Economic Theory, 2021 (with Vladimir Asriyan and William Fuchs)
Does information aggregate in a decentralized marketplace with dispersed information? We study this question in a dynamic setting where sellers have private information that is correlated with an unobservable aggregate state. [Slides] [Working Paper]
American Economic Review, 2020 (with Brendan Daley)
We study a bargaining model in which a buyer makes offers to a privately informed seller, while gradually learning about the seller’s type from “news.” We find that the buyer’s ability to leverage this information to extract more surplus from the seller is remarkably limited. [Slides] [Working Paper]
Journal of Finance, 2020 (with Brendan Daley and Victoria Vanasco)
Credit ratings jointly affect bank's incentive to retain loans as well as their incentive to originate good loans and shift the economy toward an originate-to-distribute equilibrium. [Slides] [Working Paper] [FTG Digest]
American Economic Review, 2019 (with Vladimir Asriyan and William Fuchs)
We develop a rational theory of self-fulfilling sentiments based on the interaction between adverse selection and resale considerations. [Slides] [Working Paper]
THE HOT-HAND FALLACY: COGNITIVE MISTAKE OR EQUILIBRIUM RESPONSE? EVIDENCE FROM MAJOR LEAGUE BASEBALL
Management Science, 2018 (with Jeff Zwiebel)
We find strong evidence of a hot hand in major league baseball. Our results are in notable contrast to the majority of the hot-hand literature. We argue that this difference is attributable to endogenous defensive responses. [Slides] [Working Paper]
Media Coverage: NY Times, Washington Post, Boston Globe, ESPN, Priceonomics, Quartz
American Economic Review, 2017 (with Vladimir Asriyan and William Fuchs)
Information spillovers generate multiple equilibria when asset values are sufficiently correlated. Improving transparency of trading behavior changes its information content. [Slides] [Working Paper]
American Economic Review, 2016 (with Curtis Taylor)
Self-reported progress can be used to improve economic outcomes. The optimal contract involves both deterministic and stochastic deadlines. [Slides] [Working Paper] [Online Appendix]
Journal of Finance, 2016 (with Brendan Daley)
Liquidity varies over time due to asymmetric information and fluctuations in trader's beliefs about asset values. [Slides] [Working Paper] [Online Appendix]
Journal of Financial Economics, 2016 (with William Fuchs and Dimitris Papanikolaou)
In a dynamic, general equilibrium model, adverse selection leads to delays in firms’ divestment decisions and thus slow recoveries from shocks, even when these shocks do not affect the economy’s potential output. [Slides] [Working Paper]
Journal of Financial Economics, 2015 (with Snehal Banerjee)
Uncertainty about whether other traders are informed leads to a non-linear price that reacts asymmetrically to news. Novel dynamics emerge when traders learn about others over time. The model nests both rational expectations (RE) and differences of opinions (DO) models, but generates predictions that obtain in neither. [Slides] [Working Paper]
Journal of Economic Theory, 2014 (with Brendan Daley)
Public information about the sender fundamentally changes the prediction of classic signaling models. The equilibrium depends on the prior and resolves a long-standing paradox within the signaling literature. [Slides] [Working Paper] [Online Appendix]
Econometrica, 2012 (with Brendan Daley)
Gradual learning about the seller from ``news" leads to periods of trade breakdown in dynamic markets with asymmetric information. The model nests Akerlof and Spence. With sufficiently informative news, the equilibria of these two canonical settings look the same. [Slides] [Working Paper] [Online Appendix]