Papers
Uploaded: Mar 15, 2019
Dynamic Coordination with Flexible Security Design
Entrepreneurs obtain funding liquidity by issuing securities backed by the current period dividend and resale price of a long-lived collateral asset. They are privately informed about the collateral quality. Higher (lower) resale price lowers (increases) adverse selection and makes the...
Uploaded: Mar 14, 2019
Choosing to disagree in financial markets
The rational expectations paradigm restricts the subjective beliefs of investors to align with the objective distribution. We relax this constraint and analyze how investors optimally choose their subjective beliefs about the information contained in their private signals and in prices....
Uploaded: Mar 14, 2019
The Tragedy of Complexity
This paper presents an equilibrium theory of product complexity. Complex products generate higher potential value, but require more attention from the consumer. Because consumer attention is a limited common resource, an attention externality arises: Sellers distort the complexity of their...
Uploaded: Mar 13, 2019
Asymmetric Information and Security Design under Knightian Uncertainty
We study a signaling game in which an issuer with private information about the distribution of the project’s cash flows designs a security to sell to an uninformed investor to raise financing for the project. The investor faces Knightian uncertainty...
Uploaded: Mar 13, 2019
Bank Capital Forbearance
We analyze the strategic interaction between undercapitalized banks and a supervisor who may intervene by preventive recapitalization. Supervisory forbearance emerges because of a commitment problem, reinforced by fiscal costs and constrained capacity. Private incentives to comply are lower when supervisors...
Uploaded: Mar 12, 2019
Liquidity Sentiments
We develop a rational theory of liquidity sentiments in which the market outcome in any given period depends on agents' expectations about market conditions in future periods. Our theory is based on the interaction between adverse selection and resale considerations...
