Online Appendix
We consider the labour market for financial advisers in the US using a matched employer-employee data set over the period 2008–2018, in order to examine gender gaps and racial disparities in labour market penalties for financial misconduct. We first show that the measurement of labour market penalties for financial misconduct plays a central role and the interdependence across misconduct-related events (e.g. customer disputes, regulatory actions, terminations) is gender- and race-specific. Accounting for this, we find that there are little gender gaps in job separation following misconduct and in the incidence of employer-initiated terminations conditional on misconduct-related events. In contrast, we find that racial minorities are at least 20% more likely to leave a firm following customer disputes or regulatory actions compared to their majority counterparts, and also that the racial minorities are 25% more likely to receive terminations. This remains true even after controlling for education.
Key Words: Financial Advisers, Misconduct, Gender Gap, Racial Inequality, Discrimination.
Online Appendix
We investigate career concerns of financial advisers with a focus on their risk-taking and upward mobility. We use matched employer-employee data for the universe of financial advisers with one well-known national ranking for top financial advisers. We find that at early career stages before being ranked, top advisers (i) are twice as likely to acquire a certain license to serve as investment adviser, (ii) encounter customer disputes way more frequently (up to seven times), and (iii) switch to a firm of 80% larger size as measured by total assets, than average advisers. We also find that top advisers manage high risks through labour-market penalty reduction associated with disciplinary actions. Lastly, using variations in firm policy for recruitment across firms, we provide evidence that reducing frictions in job mobility yields sorting dynamics that employers recruit high productive workers intensively within a short time window.
Key Words: Career Concerns, Financial Advisers, Job Mobility, Risk-Taking, Sorting.
When Liability is Not Enough: Regulating Bonus Payments in Markets With Advice (with Roman Inderst and Marco Ottaviani)
We introduce a model of advice in which firms steer advisors through nonlinear incentive schemes. In addition to developing an isomorphism to pricing with mixed bundling, we obtain three main insights. First, firms optimally use nonlinear bonuses to economize on the rent paid to advisors. Second, equilibrium bonus payments induce advisors to make biased recommendations that are artificially contingent on each other, resulting in an inefficient allocation. Third, if advisor liability is stepped up, firms respond by increasing the size of the bonus, leaving advisor bias unchanged. These results support direct regulatory interference on the way advisors are compensated.
Key Words: Markets with Advice, Nonlinear Incentives and Bonus Payments, Biased Recommendations, Liability, Regulation.
In many procurement auctions, entrants determine whether to participate in auctions based on their roles as intermediaries in order to search for the best (or the cheapest) input suppliers. We build on a procurement auction model with entry, combined with intermediary search for suppliers. The model endogenously generates costs for bidders through strategic supplier pricing. We show the existence of an equilibrium with price dispersion for inputs in which costs can be heterogeneous among bidders. Interestingly, the procurement cost may rise as the number of potential bidders increases.
Key Words: Information Frictions, Search, Procurement, Auction, Entry Deterrence, Vertical Relation, Price Dispersion.
The Double Diamond Paradox (with Daniel Garcia and Maarten Janssen)
American Economic Journal: Microeconomics 9.3, 2017: 63–99
We study vertical relations in markets with consumer and retailer search. We obtain three important new results. First, we provide a novel explanation for price dispersion that does not depend on some form of heterogeneity among consumers. Price dispersion takes on the form of a bimodal distribution. Second, under competitive conditions (many retailers or small consumer search cost), social welfare is significantly smaller than in the double marginalization outcome. Manufacturers' regular price is significantly above the monopoly price, squeezing retailers' markups and providing an alternative explanation for incomplete cost pass-through. Third, firms' prices are decreasing in consumer search cost.
Key Words: Vertical Relations, Retailer Search, Consumer Search, Diamond Paradox, Double Marginalization.
International Journal of Game Theory, September 2018, Volume 47, Issue 3, pp 893–912
This paper revisits the total bandwagon property (TBP) introduced by Kandori and Rob (1998). With this property, we characterize the class of two-player symmetric n×n games, showing that a game has TBP if and only if the game has 2n − 1 symmetric Nash equilibria. We extend this result to bimatrix games by generalizing TBP. This sheds light on the (wrong) conjecture of Quint and Shubik (1997) that any nondegenerate n × n bimatrix game has at most 2n − 1 Nash equilibria. We also provide an equilibrium selection criterion to two subclasses of games with TBP.
Key Words: Bandwagon; Nash Equilibrium; Number of Equilibria; Coordination Game; Equilibrium Selection.
Journal of Mathematical Economics 47.6, 2011: 663-669.
This note studies the relationship between the global game and the generalized potential game approaches. We provide a non-degenerate example of a symmetric 3×3 supermodular game that has no monotone potential maximizer (MP-maximizer). Since the global-game solution for symmetric 3×3 supermodular games is independent of the noise distribution, this implies that MP-maximizer is not a necessary condition for global-game noise-independent selection.
Key Words: Equilibrium selection; Global games; Supermodular games; Potential games; Monotone potential.
A Note on Aumann's Core Equivalence Theorem without Monotonicity (with Shin-ichi Takekuma)
Advances in Mathematical Economics, 13, 2010: 35-46.
In an exchange economy with a continuum of traders, we establish the equivalence theorem on the core and the set of competitive allocations without assuming monotonicity of traders’ preferences. Under weak assumptions we provide two alternative core equivalence theorems. The first one is for irreducible economies under Debreu’s assumption on quasi-equilibria. The second one is an extension of Aumann’s theorem under weaker assumptions than monotonicity.
Key Words: Core; Equivalence; Monotonicity; Quasi-Equilibrium; Irreducibility.