We model firms' allocation of resources between surplus-creating (a.k.a., productive) and surplus-appropriating (a.k.a., rent-seeking) activities. We show that industry-wide technological advancements, such as the recent progress in the collection and processing of big data, induce a disproportionate and socially inefficient...

We let “Algorithmic Market-Makers” (AMMs), using Q-learning algorithms, choose prices for a risky asset when their clients are privately informed about the asset payoff. We find that AMMs learn to cope with adverse selection and to update their prices after...

The last three decades have seen rapid growth in the number and variety of financial products issued. This paper studies innovation in financial products using a combination of granular data on security issuance and a model of allocation of financial...

Wealthy individuals typically hold large positions in illiquid assets. We examine this phenomenon using a dynamic model of portfolio choice in oligopolistic financial markets. At the individual level, we characterize a trade-off between rent extraction and risk management that induces...

We show how to measure the welfare effects arising from increased data availability. When lenders have more data on prospective borrower costs, they can charge prices that are more aligned with these costs. This increases total social welfare, and transfers...

The modern financial system features complicated financial intermediation chains, with each layer performing a certain degree of credit/maturity transformation. We develop a dynamic model in which an entrepreneur borrows from overlapping-generation households via layers of funds, forming a credit chain....