Research

Commitment or Exit: Dynamic Equity Compensation with Heterogeneous Shareholders [Link to Paper]

Equity compensation need not be driven by a shareholder’s desire to maximize the share price. I study a setting in which a blockholder, acting as the corporate steward, has different preferences than traders setting prices in financial markets, for example, due to differences in risk tolerance, time horizon, ESG priorities, or common ownership concerns. In a static setting, equity solves the managerial moral hazard but aligns the manager with the marginal trader rather than the blockholder. Dynamically, however, the blockholder incentivises the manager to exert effort and implement her preferred policy. Equity remains part of the optimal contract to minimise deviation payoffs. The share price is intentionally not maximised, managerial compensation rises, and small shareholders may be hurt. Dynamic incentive provision relies on a blockholder’s continued investment, making it easier for exogenously locked-in blockholders, such as founding families or index funds, than for blockholders who can exit. 

Presentations: 16th RGS Doctoral Conference, NBIM-Oxford Conference on Common Ownership / Experimental Governance and IO, 6th Erasmus Corporate Governance Conference, ESSFM

Profit Shifting and Internal (In)Efficiency [Link to Paper]

Multinational enterprises (MNEs) can lower their tax liabilities by strategically choosing to re-allocate capital internally between subsidiaries (debt shifting) and by pricing these internal capital flows advantageously (transfer pricing). In this paper, I present a new channel that allows MNEs to decrease their effective cost of capital through tax planning by exploiting the spread between the external and internal cost of capital. MNE subsidiaries are optimally larger and less profitable than comparable individual firms. While profits are shifted from high-tax to low-tax countries reducing overall tax receipts, production expands. Implications for tax avoidance policies that maintain the production-enhancing properties of internal debt are discussed.

Presentations: SMYE 2022, ITFA Conference 2022, International Workshop for Early Career Economists: Shaping Globalisation (Mainz), IIPF Congress 2022, ETSG 2022, European Commission - JRC: Fiscal Unit, University of Passau

Polarisation Pass-Through with Marcin Roter [New Version Coming Soon]

In parliamentary systems, party competition restricts the leeway political leaders have in shaping policy. We develop a novel framework that combines a two-party election model with a strategic parliamentary stage to show how party organisation shapes the pass-through from party leaders' preferences to policy outcomes. The key mechanism is the interaction of electoral pressures and legislative constraints: even polarised leaders must tolerate a more centrist party wing to remain electorally viable, and policies must be acceptable to this wing to secure a parliamentary majority. Intra-party discipline can reduce, but not eliminate, this tension by encouraging party members to vote partly against their own preferences. However, discipline is costly and only optimal when voters are highly, but elites only moderately, polarised.

Presentations (incl. by co-author): Swiss Society of Economics and Statistics, ECWE - Verona, Warsaw International Economic Meeting 2024, University of Linz, CERGI-EI

Inefficient Full Surplus Extraction [Link to Paper]

Full surplus extraction (FSE) occurs when a principal designs an incentive compatible mechanism under which the privately informed agent earns no information rents. Previous FSE results imply that FSE is (weakly) efficiency enhancing and thus only beset with distributional concerns. In this paper, I derive the necessary and sufficient condition  for FSE in the canonical adverse selection model with type-dependent reservation utilities and general quasi-linear utility functions. There, I show that FSE can be inefficient: the FSE mechanism can be optimal even though the best non-FSE mechanism implies a higher total surplus.

Generically Separable Belief-Types [Link to Paper]

In most mechanism design applications, it is assumed that different types have different preferences but share the same belief. The agent earns information rents. Relaxing the unrealistic assumption of common beliefs, Crémer and McLean (1985,1988) consider an environment where no two types share the same belief or the same preferences. The agent does not earn information rents if the beliefs satisfy a generic convex independence condition. I re-assess this convex independence condition in a richer type space, where two different types may share preferences or beliefs. There, the optimal mechanism generically separates the types by the latter: the allocation and the agent's expected utility carry over from the optimal mechanism in the restricted sub-game including only types with the same belief. The assumption that all agents share the same belief is generically without loss of generality in determining the efficiency properties of the optimal mechanism.