Recent Publications:

1. Present-biased Government and Sovereign Debt Dynamics, with Yuan Li and Jinqiang Yang, 2021, Journal of Mathematical Economics.

Governmental present bias arises due to election, such preference impairs the sovereign's commitment to future debt policy. If the country is moderately indebted, the desire for instantaneous gratification drives the government to issue debt. However, with excessive indebtedness, the top concern is to procrastinate costly default, and present bias serves as an implicit commitment device that induces the government to repurchase existing debt.

2. Robust Contracting and Corporate-termism, 2022, Economics Letters.

Ambiguous transitory shocks generate pessimism concerning earnings in the short run, while ambiguous permanent shocks can lead to optimism about the long-run growth rate. Short-run pessimism mitigates agency costs, leading to short-termism. In contrast, long-run optimism exacerbates the cost of incentive provision and reduces the long-run investment below the first-best level.

3. Robust Leverage Dynamics without Commitment, with Shilin Li and Jinqiang Yang, 2022, Economic Theory.

Creditor ambiguity aversion allows a firm to take advantage of the debt tax shield in no-commitment equilibrium. In contrast, shareholder ambiguity aversion mitigates overborrowing incentives only when the default option is out-of-the-money. Interestingly, we show that the commitment against future debt dilution could be suboptimal because of inefficient ambiguity sharing.

4. Consumption dynamics with law of small numbers, with Yingjie Niu, Yaoyao Wu and Zhentao Zou, 2024, Journal of Economic Behavior and Organization.

We propose an intertemporal consumption-saving model with the Law of Small Numbers. The belief heuristic reduces precautionary savings demand and provides an alternative explanation for excess sensitivity and excess smoothness in consumption.

5. Present bias: Understanding zero leverage policy and unstable capital structure, with Yuan Li and Tak-Yuen Wong, 2025, Journal of Mathematical Economics.

We develop a dynamic capital structure model for a present-biased entrepreneur without commitment. Debt issuance costs lead sophisticated entrepreneurs toward a zero-leverage strategy, while naive entrepreneurs underestimate future refinancing and generate unstable capital structure.

6. Present-biased heterogeneity, marginal propensity to consume, and wealth distribution, with Yuan Li and Jinqiang Yang, 2024, Macroeconomic Dynamics.

This paper studies heterogeneous present bias in a heterogeneous-agent model. The model jointly matches average marginal propensities to consume and the wealth distribution, and shows how fiscal stimulus, financial literacy, borrowing costs and illiquidity interact with present bias and naivete.

7. Entrepreneurship and leverage dynamics without commitment, with Caiquan Bai, Chen Feng and Congming Mu, 2025, Journal of Economic Dynamics and Control.

We build a dynamic liquidity management model for a risk-averse entrepreneur facing leverage commitment friction. Low risk aversion leads to active debt buybacks, while high risk aversion generates a leverage ratchet effect and risk-taking incentives in distress.

Working papers:

1. Dynamic Agency, Corporate Liquidity, and Investment Horizon, with Tak-Yuen Wong, In progress. 

Optimal sharing of liquidity risk drives over-investment in the short term regardless of how capital and earnings shocks are correlated. Cash-rich firms have a relatively long investment horizon and compensate managers with equity-based instead of accounting-based incentives.