Research
(Journal of Monetary Economics, 2022)
We show theoretically that, in the presence of persistent productivity shocks, the reliance on self-enforcing contracts due to limited legal enforcement may provide a possible rationale why countries with the worse rule of law might exhibit: (i) higher aggregate TFP volatilities, (ii) larger dispersion of firm-level productivity, and (iii) greater wage inequality. We also provide suggestive empirical evidence consistent with the model's aggregate implications. Finally, we relate the model's firm-level implications to existing empirical findings.
Korea University, Universidad Carlos III de Madrid (*), University of Minnesota (*), UT Austin (*), Vienna Graduate School of Finance (*), 2021 Greater Bay Area Finance Conference, Utah Winter Business Economics Conference(*), the 4th Relational Contracts Workshop at University of Chicago (*), the Society for the Advancement of Economic Theory Conference 2019 at Ischia, the 4th FTG European Summer Meeting at Madrid, and Virtual Finance Theory Seminar (*)
(*indicates co-author presentation)
(Previously titled "Price Experimentation in Confidential Negotiations")
I analyze a dynamic model of concurrent bargaining in which multiple long-lived prospective buyers compete to trade with a long-lived seller over two periods. The paper investigates how offer confidentiality and buyer participation affect bargaining dynamics within this framework. When buyers’ past offers are kept confidential, they can competitively engage in “price experimentation” (i.e., risking an initial loss to enjoy a future information rent). As a result, the seller can benefit from maintaining offer confidentiality and reducing the number of buyers participating in the confidential bargaining game, even in the absence of buyer entry costs.
Annual Conference of the EALE, Stony Brook International Conference on Game Theory, AEFIN Finance Forum, Barcelona GSE Workshop, CICF, Durham Economic Theory Conference, Econometric Society Meetings, FTG Summer School, Hong Kong Joint Finance Workshop, Stanford SITE - Dynamic Games, Contracts and Markets, World Congress of the Game Theory Society, McCombs School of Business, CUHK, and Korea University
We study a dynamic moral hazard problem involving initial exploration followed by exploitation, merging experimentation with dynamic corporate finance. We show how the methods and conclusions of the experimentation literature change when considering the exploitation phase’s non-monotonic payoff structure that arises naturally in the presence of moral hazard and limited liability. In particular, the agent’s incentive constraints may be slack during the exploration phase, which affects compensation dynamics and can reduce inefficiencies from under-experimentation.