I analyze financial frictions and their effects on non-financial corporations. I implement microeconometric methods and game-theoretic tools to identify frictions precisely. This makes it possible to identify and promote cost-effective policies, as we show with Noémie Pinardon-Touati and Aymeric Bellon for credit mediation.
Beyond employment, investment and firms' survival, productivity is a crucial underlying issue. This is why, when analyzing central banks' collateral policy, I show that it is riskless and works as predicted by Diamond and Dybvig (1983, p. 417), fostering productive long-term projects. This paves the way for analyzing sustainable growth: in the LIQEXPE project, I will see whether alleviating financial frictions permits greener production by fostering anti-pollution investments or productive efficiency.
In theory works, I identify minimal sets of frictions harming productive projects. For instance, the unverifiability of probabilities of default may cause hold-up by firms. This friction is more limited and realistic than the unverifiability of firms' income flows which prevents final repayment; this allows for focusing instead on liquidity issues over the course of a productive project.
In Covid papers, I use theoretical tools to curb epidemics when little is known. For instance, I show that information-theoretic limits rely on an implicit assumption and can be overcome by accounting for homophily when designing group-tests.
Banks' skin-in-the-game and hold-up by illiquid firms: strategic bargaining, dynamic inconsistency and credit constraints link
When assets are firm-specific, the bank-firm relationship features a bilateral monopoly, causing strategic bargaining at loan renewal. Bargaining powers are determined only by the interest rates and interest flows, and the latter weaken the bank's bargaining position. Outside options (which are unrelated to bargaining powers due to the outside option principle) encompass financial frictions. Hold-up by illiquid firms is bound to happen if (1) the perfect equilibrium partition does not allow the bank to break even and (2) when the bank declines to roll over, the firm benefits more by defaulting than by borrowing elsewhere. Condition (2) means that the bank cannot break even by declining to roll over. Such hold-up by illiquid firms provides a new foundation for long-term lending to finance long-term projects, and, if banks are otherwise unable or unwilling to lend long, for credit constraints.
Real Effects of Central Bank Collateral Policy : liquidity insurance at work ssrn
Using a large eligibility shock, I show that liquidity insurance by the central bank has significant real effects. The specific data structure makes it possible to tackle usual shortcomings of Differences-in-Differences estimators and problems identified in the recent econometric literature. Eligibility extension significantly increased material investment and employment, especially for small firms more affected by liquidity constraints. Firms were able to invest more because they received more long-term loans. In turn, banks lent long because they enjoyed liquidity insurance by the central bank. That is, the mechanism follows the three steps predicted by Diamond and Dybvig (1983). In particular, the French central bank did not take over firms’ default risk, discarding risk-shifting, thanks to a rigorous institutional framework, the importance of which is rightly underlined in the later literature.
Mediating Financial Intermediation with Aymeric Bellon (UNC) and Noémie Pinardon-Touati (Columbia) ssrn
We study the resolution of disputes between firms and their lenders through external mediators, who suggest a non-legally binding solution to resolve a disagreement after communicating with all parties. We exploit an administrative database on firms’ outcomes matched to the French credit registry and plausible exogenous variation in eligibility to public mediators across counties for identification. Participating in a mediation reduces firms’ liquidation by 34.6 percentage points and leads to higher credit, employment, and investment. All the effects are driven by firms that borrow from more than one bank, supporting the view that mediators solve coordination problems between lenders.
Repeated Purchase with Endogenous Bounded Rationality Search: Games of Overcutting
I examine Bertrand competition with two identical stores fixing fully flexible prices simultaneously, without commitment à la Maskin and Tirole (1988). There is no punishment, hence no credibility issues and no Folk Theorem. Consumers visit only one store per period and buy a unit good with a unique known reservation price. They have perfect memory and search by visiting the other store next period if the price they currently observe is not lower than the last price they observed in the other store (bounded rationality). Sellers’ strategy induces a subgame perfect equilibrium. A seller may increase price strongly to induce its competitor to follow since it is more profitable to get half consumers at high prices than all consumers at low prices. Then, final prices are very similar, just below the reservation price. This outcome is similar to a cooperative one, although the game is fully competitive. I label this mechanism “overcutting”. This simple theoretical model reproduces the empirical results of Berardi et al. (2013): large price increases and limited price decreases. I show that classical undercutting requires the coexistence of both endogenous and exogenous search by consumers.
Harpedanne de Belleville, L.-M. (2016), "Contagion internationale post-Lemahn: marges intensive et extensive", Revue Française d'Economie , vol. 30, n°3, pp. 143-188. link
Bignon, V., F. Boissay, C. Cahn and L-M Harpedanne de Belleville (2016), "Extended eligibility of credit claims for Eurosystem refinancing - Consequences for the supply of credit to companies", Banque de France Quarterly Selection of Articles n°43, pp. 15-23. link
Aleksanyan, L., L-M Harpedanne de Belleville et D. Lefilliatre (2010), "Les déterminants de la multibancarité des entreprises en France", Bulletin de la Banque de France n° 181, pp. 33-47. link
Attal-Toubert, K., L-M de Belleville et B. Pluyaud (2002) "L’impact à court terme sur les prix du passage à l’eurofiduciaire" (2002), Bulletin de la Banque de France n° 105, pp. 51-75. link
Chevrot, J., Y. Burfin, T. Petit, D. Koubi et L-M Harpedanne de Belleville (2018), "L’industrie francilienne, des mutations de long terme toujours à l’oeuvre", Bulletin de la Banque de France n°220/5, 8pp. link
Harpedanne de Belleville, L.-M. (2019), “The Credit Mediation Scheme: 10 years of service to businesses and the economy", Bulletin de la Banque de France n° 225/4, 10pp. link
Harpedanne de Belleville, L-M, and D. Lefilliatre (2014), "The decline in profitability has affected the investment of SMEs", Banque de France Quarterly Selection of Articles n°35, pp. 21-43. link
Group testing with Homophily to Curb Epidemics with Asymptomatic Carriers. medrxiv
Act Now or Forever Hold your Peace: Slowing Contagion with Unknown Spreaders, Constrained Cleaning Capacities and Costless Measures. ssrn