New Working Papers

"The Design of Optimal Collateralized Contracts," with D. Cao, June, 2017. 

We examine the role of collateral in a dynamic model of optimal credit contracts in which a borrower values both housing and non-housing consumption. The borrower's private information about his income is the only friction. An optimal contract is collateralized when in some state, some portion of the borrower's net worth is forfeited to the lender. We show that optimal contracts are always collateralized. The total value of forfeited assets is decreasing in income, highlighting the role collateral as "anti-insurance" required to deter manipulation. Endogenous default arises when the borrower's initial wealth is small and/or his income is unstable.

 "Tipping Points and Business-as-Usual in a Global Carbon Commons,"  with R. Harrison,  July, 2017.  

AbstractThis paper analyzes a dynamic strategic model of carbon consumption among nations. Each period, countries extract carbon from the global ecosystem. A  country's output depends both on its   carbon usage and on "stored carbon" in the ecosystem. The desired mix of extracted versus stored carbon varies across countries and evolve stochastically over time.  

A  Business-as-usual (BAU) equilibrium characterizes countries' strategic incentives in the absence of an effective international agreement. Under non-concave carbon dynamics, depletion of the carbon stock in a BAU equilibrium may reach a tipping point below which the global commons spirals  downward toward a steady state of marginal sustainability. These tipping points emerge endogenously. We show that if   elasticities with respect to carbon usage become large  enough, a tipping point will be breached.  We find that countries will, in fact, accelerate  their rates of carbon usage the closer   they are to tipping. Even so, there remains a time span (a "negotiation  window") in which a collapse may be averted if the countries agree to implement the  socially  efficient  profile of carbon usage.  


Recent Publications

"Auditing, Disclosure, and Verification in Decentralized Decision Problems" with L. Anderlini and D. Gerardi, forthcoming in Journal of Economic Behavior and Organization, 2016. 

 "Dynamic Mechanism Design for a Global Commons," with R. Harrison, forthcoming in International Economic Review (2016).  

   "Revealed Political Power," with J. Bai, International Economic Review, 54: 1085–1115 (2013).

   "Communication and Learning," with L. Anderlini and D. Gerardi, Review of Economic Studies, 79(2): 419-450 (2012).

   "On the Faustian Dynamics of Policy and Political Power, with J. Bai, Review of Economic Studies, 78: 17-48 (2011).

   "Social Memory, Evidence, and Conflict," with L. Anderlini and D. Gerardi, Review of Economic Dynamics, 13: 559-574 (2010).

   "Markov Perfect Equilibria in Repeated Asynchronous Choice Games" with H. Haller, Journal of Mathematical Economics, 46: 1103-1114 (2010).

   "The Dynamic Stability and Reform of Political Institutions , Games and Economic Behavior, 67: 569-583 (2009).