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Market and Non-Market Exchange: Complements or Substitutes?
(2025)
R&R, 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)
Submitted
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
Dynamics Scientific Research In Diverse Scientific Fields (2026)
Under Revison
Felipe Balmaceda
Abstract
This paper advances our understanding of a researcher's strategy in different research fields by modeling research as a sequential process of information acquisition (experimentation). We study a researcher who is deciding whether to pursue a new idea when he already has a "safe" idea with a known outcome. The payoff of the new idea is uncertain and depends on the state of the world. 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. We show that research intensity and the probability that the new 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 explains why some researchers follow the low-quality, many-publications research strategy, while others follow the paradigm-change, few-publications strategy.
Keywords
Bayesian Learning
Optimal Stopping,
Reseaerch
Quality of Ideas
Preemption
Payoff Amplification
Payoff Compreesion
Competition Between Private and Public Providers with Vouchers (2025)
Under Revisio
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 (2025)
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)
Under Revision
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.