"COVID-19 Infection Externalities: Pursuing Herd Immunity or Containment? " (2020) with Anton Korinek
We analyze the externalities that arise when social and economic interactions transmit infectious diseases such as COVID-19. Public health measures are essential because individually rational agents do not internalize that they impose infection externalities upon others. In an SIR model calibrated to capture the main features of COVID-19 in the US economy, we show that private agents perceive the cost of an additional infection to be around $80k whereas the social cost including infection externalities is more than three times higher, around $286k. This mis-valuation has stark implications for how society ultimately overcomes the disease: individually rational susceptible agents act cautiously to “flatten the curve” of infections, but the disease is not overcome until herd immunity is acquired, with a deep recession and slow recovery lasting several years. By contrast, the socially optimal approach in our model quickly contains the disease, producing a much milder recession. Eradication is optimal even if the infected and susceptible cannot be targeted independently, although the economic cost is much higher.
"An Information-based Theory of Financial Intermediation" (2020) joint with Bruno Sultanum and Nicholas Trachter - Revise and Resubmit at the Review of Economic Studies
Abstract: We advance a theory of intermediation that builds on private information and heterogeneous screening ability across market participants. We solve for the equilibrium market structure and show that investors with high screening ability are the largest intermediators: they are the most central in trade, they trade frequently, they trade with many different counterparties, and they ex- tract high rents. We derive a set of testable predictions from the model and we test them using transaction-level micro data. Our empirical results provide evidence that our mechanism relying on private information and screening ability is a relevant feature of intermediation in over-the-counter markets.