Felipe Balmaceda - Working Papers

Market and Non-Market Exchange: Complements or Substitutes?

(2025)

Forthcoming, JLEO

Felipe Balmaceda

Abstract

Does market exchange reduce participation in non-market exchange thus reducing overall welfare? Some

have argued that markets strengthen the conditions for a vibrant non-market exchange. Others contend that markets crowd out non-market exchange by promoting individualism, alienating individuals, and displacing social ties. This paper argues that having access to market and

non-market exchange is welfare-enhancing despite crowding out occurring. Furthermore, improvements in the quality of market-supporting institutions increase welfare and induce more non-market exchange in middle-income and low-patience communities. The paper's results shed light on the process of development.

Keywords

Market Exchange,
Non-Market Exchange,
Complementarity,
Community,
Market-supporting Institutions,
Norms

Optimal Financial Contracts and Imperfect Compettion

(2026)

Under Revision

Felipe Balmaceda

Abstract

This paper asks the following questions: How do market characteristics affect investment financing decisions?, How do other firms react to a firm's financial decisions?, and Do firms choose their in investments and financial structures to affect competitors' investment decisions? We answer these questions in a financial-structure-then-investment oligopoly game. In equilibrium firms choose to finance their investment by mean of either a debt or an option-like contract. When the strategic-commitment effect of debt is non-negative, firms borrow sufficient funds to avoid being cash-constrained in the investment sub-game. Conversely, when the strategic-commitment effect of debt is sufficiently negative, firms borrow an amount that leaves them cash-constrained during the investment sub-game. A taxonomy regarding the sign of the strategic-commitment effect in terms of investment complementarities and externalities is provided.

Keywords

Innovation,
Financial Constraints,
Competition Intensity,
Industry-wide Innovation,
Spillovers.,
Debt Contract

When to Persist, Pivot, or Publish: Learning Speed,

Payoff Structure, and the Choice of Research Strategy (2026)

Submmited

Felipe Balmaceda

Abstract

This paper studies an individual who evaluates whether to become a researcher and then decides whether to pursue a "safe" strategy with a known outcome or a risky one with an unknown outcome. Becoming an active researcher requires a strictly positive lower bound on research skills (learning speed), regardless of the shape of the investment cost and the research field. The research intensity and the probability that a risky idea is pursued depend on how fields differ in terms of the idea's incremental value, the payoff difference across states, and the probability of being preempted. The model sheds light on why some researchers follow the low-quality, many-publications research strategy, while others follow the paradigm-change, few-publications strategy. The results are partially confirmed by the empirical exercise conducted using data from www.openalex.com

Keywords

Bayesian Learning
Optimal Stopping,
Reseaerch
Quality of Ideas
Preemption
Payoff Amplification
Payoff Compreesion

Competition Between Private and Public Providers with Vouchers (2025)

Under Revision

Felipe Balmaceda,

Abstract

This paper studies a classic economic question: What is the impact of introducing private competition partially financed by vouchers on quality, prices, sorting, and welfare in a market previously supplied by public providers only? It does so in a quantity-then-price oligopoly game \`{a}-la-Perlof-Salop with horizontal and vertical differentiation. Public providers' objective function is a weighted mean between profits and market share, whereas private providers' objective is profits.

Introducing competition and vouchers in markets with horizontal and vertical differentiation has ambiguous effects on prices, quality, sorting, and consumer welfare since horizontal differentiation breaks the positive relation between quality and prices that emerges when there is only vertical differentiation. Sufficient conditions are provided for competition and vouchers to increase quality and consumer welfare.

Keywords

Voucher,
Industry-wide quality,
Public Providers,
Private Providers,
Market Power,
Competition

Simple Contracts for Due Diligence and Execution (2025)

Under Revision

Felipe Balmaceda (Unab)
Rene Caldentey (Chicago-Booth)
Maia Cupre (Northwestern U)

We study a continuous-time principal-agent model in which an expert privately acquires information about a project’s profitability before recommending whether to execute it. We consider two contract classes: one in which the principal controls the time the agent spends collecting information, and another in which the agent chooses when to stop collecting information. The principal prefers the former to the latter when the agent's outside option is large, and also when the agent's speed of learning is small. When the principal chooses the contract that leaves the stopping decision to the agent, she also delegates the execution to the agent with a positive probability, which increases the set of implementable stopping times and reduces the rents given to the agent to induce him to choose the principal's desired stopping time.

Keywords

Bayesian Learning
Private Learning
Due Diligence
Moral Hazard
Limited Liabiility
Implementation

Labor Market Power, Automation, and Generative AI (2026)

Submmited

Felipe Balmaceda

This paper argues that in labor markets with firms that have market power, automation targets low-rent jobs, increasing rents and amplifying wage losses from automation. This implies that fewer jobs are automated as market power rises, and more jobs are automated relative to conditional-allocative efficiency and productive efficiency. Indirectly, the latter results in underadoption of generative artificial intelligence. Automation-induced allocative inefficiency reduces wages and leads to a higher number of displaced workers compared to a competitive labor market. Automation may induce workers to overinvest in skills to avoid being displaced. Taxing automation can restore allocative efficiency, but at the cost of lowering wages and distorting the adoption of generative AI.

Keywords

Oligopsony
Skills
TAutomation
Generative AI
Job Design
Taxes
Human Capital Investments

The Market for Protection and Extortion (2025)

Felipe Balmaceda
Martin Castillo (Chicago-Harris)

Many states worldwide are facing significant challenges in maintaining the legitimate use of the monopoly of force (Weber) to protect their citizens against crime and non-state organized groups' violence. The presence of violent non-state groups competing in protection and extortion thwarts the state's efforts to provide security, enforce property rights, address underdevelopment, and foster economic growth. This paper develops a model to analyze the strategic competition in extortion, protection provision, and gang violence under the shadow of the state. The paper shows that the relationship between state protection and extortion, gang protection, and gang violence is non-monotonic.

Keywords

Crime
Gans
Competition
Extortion
Protection
Violence
State Capacity

Bargaining Power, Task-Specific Skills, and Artificial Intelligence (2025)

Felipe Balmaceda

This paper examines firms' adoption of artificial intelligence (AI) technology and training decisions in a labor market where jobs are multitasking, and wages are determined by alternating-offer bargaining with outside options. We argue that AI adoption enhances productivity and wages, even as it renders some skills obsolete. Workers with greater bargaining power receive less training, work in jobs where more tasks are automated, and complete fewer tasks with both skills and generative AI. Similarly, for low-skill workers. In contrast, high-skill workers receive more training, work in jobs with fewer automated tasks, and complete more tasks using both skills and generative AI.

Keywords

Task-Specific Training,
Multidimensional Skills,
Hold-up, Automation,
Generative AI
Productive Inefficiency
Skill Premium

Strategy Meets Structure: A Unified Theory of Organizational Design (2026)

Submmited

Felipe Balmaceda

Why do firms facing similar environments choose vastly different strategies and structures? This paper develops a unified model where firm boundaries (integration vs. non-integration) and internal hierarchy (centralization vs. decentralization) are jointly determined. Contrary to the view that these decisions are independent, we show that integration creates a strong bias toward centralization. Specifically, whenever integration is optimal, centralization is strictly preferred because it allows the firm to exploit correlated performance signals to reduce agency costs and to internalize externalities. In contrast, non-integrated firms face a complex trade-off: they should decentralize only when local adaptation is crucial, but must centralize when preference nonalignment is strong. This framework rationalizes why successful mergers often entail a loss of managerial autonomy, while independent firms exhibit diverse authority structures.

Keywords

Boundaries of the firm
Decentralization,
Moral hazard
Incomplete contracts
Adaptation
organization design.

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