Revision Requested:
Informational Frictions in Funding and Credit Markets [UPDATED AUG 2025], Revise and Resubmit, Journal of Economic Theory
Abstract: A key function of financial intermediaries is to borrow in financial markets and lend to firms. I show that this creates informational linkages between repo and corporate bond markets. My key result is improving transparency in either market may lower welfare even if funding liquidity improves. My model’s predictions are consistent with the bond and repo market dysfunction during the 2008 global financial and COVID-19 crises, and the impact of the introduction of TRACE on bond markets in 2002. Central to my findings is that bond prices serve as useful signals that minimize firms’ aggregate distress costs by coordinating their borrowing and intermediaries' lending activities.
A Theory of Speculation in Community Assets (with Kevin Mei) [UPDATED JUN 2023], Revise and Resubmit, American Economic Journal: Microeconomics
Abstract: We model a community platform where users learn about the quality of its services over time by using its native tokens. The key friction is users can buy tokens for services or trade them primarily for speculation. In the presence of network effects, this tension can lead to situations where no user adopts the platform’s services because the risk-adjusted benefit of adoption is lower than that from speculation. Our model can be applied to any asset that derives value from network effects and suggests high token inflation and incentive schemes favoring service usage may be integral to sustaining community participation.
A Model of Growth and Informational Frictions [UPDATED JUN 2024], Revise and Resubmit, Review of Financial Studies
Abstract: We develop a continuous-time macroeconomic model of asset markets with dispersed information that features a dynamic feedback loop between financial market trading and firm investment. The time-varying strengths of real and financial public signals give rise to countercyclical uncertainty that is positively skewed in the economy’s stationary distribution. Shocks to asset prices can generate endogenous boom-bust cycles, and slower recoveries from recessions, through this informational channel. Asset excess returns are also persistent and positively predict future real activity, investment is negatively correlated with future returns, and Tobin’s q is inflated because of systematic over-investment.
Do Public Asset Purchases Foster Liquidity? (with Daniel Neuhann) [UPDATED JUL 2024], Revise and Resubmit, Journal of Economic Theory
Abstract: We analyze how public asset purchases affect liquidity and risk sharing in imperfectly competitive financial markets. Even ``neutral'' interventions, such as budget-balanced trades of risk-free bonds, affect allocations: buying reduces liquidity and hampers risk sharing, while selling improves risk sharing but distorts intertemporal smoothing. We derive optimal quantity-based trading rules for a class of utilitarian objectives, and a liquidity pecking order determining which assets governments should trade first. We illustrate the flexibility of our framework by calibrating to institutional portfolio data. Our findings have implications for the optimal management of public asset portfolios.
Working Papers:
Building Voice in Socially Responsible Investing (with Richard Lowery) [UPDATED JUN 2025]
Abstract: We develop a dynamic model of socially responsible investment where large households trade firm equity and vote on production decisions involving the depletion of a nonrenewable resource. Although accumulating wealth and exercising voice are intratemporal substitutes, they are dynamic complements because influence is tied to wealth. Socially responsible households delay implementing resource-preserving policies that reduce firm productivity to amass wealth for future influence, while financially-motivated households may accumulate wealth to block conservation efforts. The constrained efficient technological choice balances higher productivity with society’s willingness to pay for conservation, and can be implemented through a voting protocol that assigns voice based on how depletion impacts welfare rather than shareholdings.
Strategic Savings and Capital Flows(with Daniel Neuhann) [UPDATED MAR 2024]
Abstract: We propose a dynamic model of oligopolistic financial markets in which market power allows dominant players to tilt asset prices in their favor, and examine it in the context of international risk sharing. Equilibria are shaped by a two-way feedback mechanism: market power distorts risk sharing and savings, while risk exposures and the global distribution of savings determine market power. Dominant players remain under-diversified to capture rents, which reduces trading efficiency and induces a savings glut that depresses risk-free rates. Distortions are most severe when gains from trade are high, as in bad times when risk sharing is most valuable.
Information Discovery for Industrial Policy (with Wei Xiong) [UPDATED SEP 2024]
Abstract: Amid growing interest in industrial policy, we develop a model exploring the tension between market-driven information discovery and policymakers' career incentives. While market-based information discovery can help address informational barriers faced by policymakers, career incentives may lead them to aggressively pursue their agendas to signal political capability, shifting dynamics toward a government-centric equilibrium. In this equilibrium, market participants focus on policy-related information over industry fundamentals, weakening the market’s role in information discovery and reducing policy efficiency. Our analysis highlights the importance of bureaucratic frictions and market-based information discovery in jointly shaping the effectiveness of industrial policy implementation.
Variable Pay and Risk Sharing between Firms and Workers (with Jason Sockin) [Updated FEB 2024]
Abstract: Firms differ in the extent to which they use variable pay. Using U.S. employee-employer matched data on variable pay from Glassdoor, we document such dispersion and find workers are exposed to firm-level shocks through variable pay. Credit rating downgrades from investment to speculative grade, negative shocks to financial or operational performance, and greater exposure to a financial crisis, as proxied for by the collapse of Lehman Brothers, induce firms to shift compensation toward base pay. When local labor markets tighten however, base and variable pay rise. Increased use of variable pay is associated with greater earnings variance for workers but less volatile growth for firms. We rationalize these findings in a model of risk sharing between a risk-averse firm and workers with limited commitment.
Data Privacy and Algorithmic Inequality (with John Zhuang Liu and Wei Xiong) [UPDATED JUN 2024]
Abstract: This paper develops a foundation for a consumer's preference for data privacy by linking it to the desire to hide behavioral vulnerabilities. Data sharing with digital platforms enhances the matching efficiency for standard financial products, but also exposes individuals with self-control issues to predatory products. This creates a new form of inequality in the digital era — algorithmic inequality. Although data privacy regulations empower consumers to opt out of data sharing, these regulations cannot fully protect vulnerable consumers because of data-sharing externalities. The coordination problem among consumers may also lead to multiple equilibria with drastically different levels of data sharing.
A Pay Scale of Their Own: Gender Differences in Variable Pay (with Jason Sockin) [Updated MAY 2024]
Abstract: Variable pay accounts for one-quarter of the gender pay gap within occupations. Women are 6 percentage points less likely to receive variable pay and receive 20 percent less when they do. These variable-pay gaps are ubiquitous and not driven by differences in ability, human capital, or employers. Since women are less-represented in variable-paying jobs, they accumulate variable pay less often. This under-representation is, in part, attributable to women applying less often to such roles and experiencing worse job satisfaction in them. Although policies designed to close the pay gap appear successful with base pay, they are ineffective with variable pay.
Job Characteristics, Employee Demographics, and the Cross-Section of Performance Pay (with Jason Sockin) [UPDATED JULY 2020]
Abstract: Using data from the online platform Glassdoor, we provide evidence that performance pay tracks an employee's role within the firm, exacerbates income inequality, and varies more than base pay across time, especially for job transitions. Employees in occupations requiring more interpersonal (routine) tasks receive larger (smaller) bonuses and are more (less) likely to receive a bonus. Further, employees higher up the corporate hierarchy earn significant premiums in and a larger share of income from performance pay. While age, school pedigree, firm tenure, and education magnify bonuses, demographics cannot explain these outsized returns. Our results suggest firms set compensation based primarily on the job, incentivize workers through career concerns, and reward social skills. We estimate 66% (90%) of a worker's performance (base) pay can be explained by the average among those in the same firm and job title, and that performance pay accounts for about one-fourth of a 32% performance-pay-job premium.
Works in Progress:
Dynamic Optimal Taxation with Endogenous Skill Premia (with Zongbo Huang and Jason Ravit)
Abstract: We embed imperfect substitutability across skill levels into a dynamic Mirrlees model and uncover a novel intertemporal wage compression channel in optimal labor taxation that can rationalize redistributive programs such as the Earned Income Tax Credit. In contrast to the wage compression channel found in static models, this dynamic channel lowers the optimal tax rate at the bottom, and raises it both in the middle and near the top of the skill distribution. The optimal labor tax is progressive in the short-run and our channel is quantitatively significant in comparison to other channels highlighted in the literature.
Welfare Effects of Informational Frictions with Learning in Financial Markets