Standard models assume that transactions are executed once the buyer and seller agree on a price. In practice, there is usually a period of ``due diligence" after terms have been negotiated but prior to execution. We analyze such a model. 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. [Slides]
(with Dong Wei)
Price discrimination and information discrimination are compliments; allowing for one activates a role for the other. The optimal mechanism features both. [Slides]
With credit ratings, privately informed issuers opt for more information sensitive securities such as levered equity.
UNLOCKING ACCESS TO CREDIT VIA LOCKOUT TECHNOLOGY
(with Paul Gertler and Catherine Wolfram)
A new form of collateralized lending has arisen that is facilitated by a ``lockout" technology, which allows the lender to temporarily disable the flow value of collateral to the borrower. We explore the potential frictions that this technology helps to overcome theoretically and quantify the impact in a randomized control trial. (Preliminary draft available upon request)