Luc Bridet, University of St Andrews, School of Economics & Finance

About

I am a Lecturer at the School of Economics and Finance, University of St Andrews, Scotland.

Contact
School of Economics and Finance
Castlecliffe, The Scores
University of St Andrews
St Andrews KY16 9AL, United Kingdom
Phone:   +447490466173
Email:     lb222@st-andrews.ac.uk

Research interests

Applied microeconomic theory,
Behavioral economics,
Contract theory,
Economics of education
,
Economics of experimentation

Research papers

Selling dreams: Entrepreneur optimism and collateral use in financial contracts with Peter Schwardmann

We investigate whether entrepreneur overoptimism is fostered or discouraged by the design of financial contracts. Entrepreneurs are heterogeneous and own projects of different quality, unknown to potential lenders. Entrepreneurs also exhibit motivated cognition, and may optimally bias their subjective assessment of the quality of their project by trading off the anticipatory utility benefits of being overoptimistic against the cost of overoptimism that arises from agreeing to unfavorable contractual terms. We characterize equilibrium contract design and show that depending on the weight of anticipatory concerns relative to material concerns, both monopolistic and competitive markets may exhibit realism or overoptimism in equilibrium. We find that overoptimism is accompanied by predatory loans by monopoly lenders facing advantageous selection of borrowers. However, in the more natural settings of a competitive market or of a monopoly lender facing adverse selection, we show that equilibrium contracts induce realism by entrepreneurs whenever possible, and that even when contracts induce overoptimism, the lending terms are not predatory. Furthermore, high-risk borrowers prone to overoptimism earn an additional informational rent even when they remain realistic on the equilibrium path: entrepreneurs' beliefs are subject to market discipline but their nonstandard preferences are rewarded in the marketplace.

The major decision: Timing of specialization in higher education with Margaret Leighton

College students in the United States choose their major much later than their counterparts in Europe. American colleges also typically allow students to choose when they wish to make their major decision. In this paper we estimate the benefits of such a policy: specifically, whether additional years of multi-disciplinary education help students make a better choice of specialization, and at what cost in foregone specialized human capital. We first document that, in the cross section, students who choose their major later are more likely to change fields on the labor market. We then build and estimate a dynamic model of college education where the optimal timing of specialization reflects a tradeoff between discovering comparative advantage and acquiring occupation-specific skills. Multi-disciplinary education allows students to learn about their comparative advantage, while specialized education is more highly valued in occupations related to that field. Estimates suggest that delaying specialization is informative, although noisy. Working in the field of comparative advantage accounts for up to 20% of a well-matched worker's earnings. While education is transferable across fields with only a 10% penalty, workers who wish to change fields incur a large, one-time cost. We then use these estimates to compare the current college system to one which imposes specialization at college entry. In this counterfactual, the number of workers who switch fields drops from 24% to 20%; however, the share of workers who are not working in the field of their comparative advantage rises substantially, from 23% to 30%. Overall, expected earnings fall by 1,5%.

The bullshit tax: Taxing persuasion expenditures to encourage early concessions

This paper analyses dynamic and costly advocacy by an informed party. In continuous time, an advocate produces a costly signal in order to persuade a target audience that his preferred position is the correct one. Since persuasion expenditures are costly, advocates campaigning against the audience's interest quit if the audience's beliefs about the case become so adverse that the option value of remaining active fails to cover the expected costs. I highlight the value of such concessions, as opposed to gradual persuasion, in conveying payoff-relevant information to the audience. I show that since advocates fail to account for the audience's informational benefit in their concession decision, increasing the private marginal cost of persuasion by means of a pigouvian tax induces early concessions and improves welfare. The quality of the audience's eventual decision-making is not improved by the tax, but decisions occur quicker and advocates incur fewer persuasion-related expenses.


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Luc Bridet,
14 Mar 2019, 15:22
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Luc Bridet,
14 Mar 2019, 15:22
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