- “Decentralized Exchange” (with S.
Malamud), available by e-mail,
Revise and Resubmit, The American Economic Review.
Assets and goods are
increasingly traded away from public exchanges. This paper develops an
equilibrium model of decentralized trading that accommodates any
networked markets with coexisting exchanges represented by hypergraphs. We identify economic effects that
do not have centralized-market counterparts.
Theory and Design
of Divisible Good Markets
- “Price Inference in
Small Markets” (with M. Weretka), Econometrica 80, 2 (2012), 687-711. PDF
The literature on
information aggregation suggests that larger markets unambiguously
improve price inference. These results have been developed for markets
where the values of all traders for the exchanged good are determined by
a fundamental (common) shock. Heterogeneity in (income, endowment,
liquidity, or preference) shocks underlying trader values changes the
predictions of the classical model: Smaller markets may offer
opportunities to learn from prices that are not available in large
- “Demand Reduction and Inefficiency in
Multi-Unit Auctions” (with with L. Ausubel, P.
Cramton, M. Pycia, and M. Weretka),
Review of Economic Studies 81, 4
(2014), 1366-1400. PDF
Auctions often involve the sale of
multiple units of goods or assets; Treasury, emission permits,
electricity, repo and spectrum are examples. We examine (in)efficiency
and revenue for the commonly used multi-unit auction formats. We explain
the new incentives through multi-unit features, not present in auctions
with unit demands, such as multi-unit but constant marginal utility and
diminishing marginal utility.
Market Design” (with M. Ollar
and J. H. Yoon), available by e-mail.
This paper suggests an
incentive-based alternative to the “differential privacy” approach (Dwork (2006)) by considering how the rules of market
design itself can be defined to preserve privacy. Privacy-preserving
designs that correspond to the common market mechanisms (e.g., the
uniform-price double auction, the dark pool) emerge as solutions to a
class of mechanism design problems aiming for maximizing efficiency.
- “Information and Strategic Behavior” (with M. Weretka), The Journal of
Economic Theory 158 (2015), 536–557. PDF
Does encouraging trader
participation enhance market competitiveness? When trader preferences
are interdependent, for natural information structures, larger markets
may be less efficient, less liquid and be characterized by lower per
- “Efficient Design in
Auctions and Matching” (with N. Yoder), available by e-mail.
Games in Spans: Applications to Financial Innovation, Information Disclosure,
and Bundling Many economic problems involve
sellers choosing collections of “bundles” in order to maximize the bundles’
market value. Instances of optimization over bundles include issuance of asset-backed
securities by real asset holders, choosing a portfolio of risky assets to
offer by central banks and Treasury Departments, and selection of product
variety by multiproduct sellers with a bundle interpreted as a product with
multiple continuous characteristics or attributes. To study these economic
problems, the following introduce and analyze a class of single-agent
problems and games in which strategies are spans.
in Financial Innovation” (with A. Carvajal and
M. Weretka), Econometrica 80, 5 (2012), 1895-1936. PDF
A paper on endogenous
(in)completeness of market structures. When does competition in
financial innovation among asset owners provide sufficient incentives to
create and complete markets? In
economies with convex marginal utility, any financial structure with an
incomplete set of securities brings higher market value of the assets
than a complete financial structure, even if innovation is costless.
Thus, if market efficiency is to be improved through asset innovation,
incentives other than maximization of asset value are necessary. This
paper introduces games over spans, which can be useful in modeling
competition beyond the financial application.
- “JOBS and SOX: ’Evolving
with New Paths to Capital Formation’” (with A. Carvajal and G. Sublet). PDF
This paper examines the recent change in the regulatory framework of
small business financing – the first major change in securities
legislation in eight decades, which weakens disclosure requirements for
small companies seeking financing. The critics of the controversial JOBS
Act, which, in particular, makes room for financing though private
market (crowdfunding), have warned about the possibility of a reduction
in the investors' willingness to invest and, hence, the capital raised
by firms. As this research demonstrates, the risk sharing motive for
trading itself implies that the new legislation is indeed consistent
with its intended objectives of capital formation and efficiency.
- “Bundling without Price
Discrimination” (with A. Carvajal
and M. Weretka), available by e-mail.
In the literature, the
central motivation for bundling is that it allows sellers to price
discriminate buyers. The ability to price discriminate requires that the
seller can monitor individual purchases and resale markets be limited or
absent—in essence, some form of limits to arbitrage. In some markets,
including financial, there are significant arbitrage opportunities and
thus non-linear pricing is not available. This paper demonstrates a new
mechanism that gives rise to bundling profitability, even in markets
with arbitrary arbitrage possibilities. Thus, as a tool to increase
profits, bundling need not rely on price discrimination.
- “Quantile Maximization in Decision
Theory,” The Review
of Economic Studies 77 (2010), 339-371. PDF
This paper introduces a model
of preferences in which an individual compares uncertain alternatives
through a quantile of the induced utility distributions. The choice rule
of Quantile Maximization nests maxmin and maxmax but also captures less extreme scenario-based
or order-statistics analysis. Quantile Maximization, unlike Expected
Utility or any cardinal model, can provide a decision theory for
environments in which the alternatives involve categorical variables
(e.g., quality ratings, professions, grades); as well as a more general
way of expressing a preference for robustness to own utility’s
assessments. It can also be used in policy implementation for
populations with heterogeneous preferences in which a decision maker’s
only knowledge about preferences is that people prefer more to less.
- “Dynamic Thin Markets” (with M. Weretka), The
Review of Financial Studies, Forthcoming. PDF
Many markets, including
financial, are thin in that trade is dominated by a group of large
agents who have price impact. The assumption of price-taking behavior
underlies many central results in asset pricing, in particular the
no-arbitrage principle and full diversification of risk. This paper
develops an equilibrium foundation for the illiquidity that arises from
price impact. Dynamic bilateral price impact changes both the efficiency
and arbitrage properties of equilibrium in ways not anticipated either by
static models with bilateral price impact or dynamic models with
one-sided market power.
- “Thin Markets” (with M. Weretka), The
New Palgrave Dictionary of Economics Online (2008), Steven N. Durlauf and Lawrence E. Blume, Eds. Palgrave
Discrimination and Resale” (with A. Basuchoudhary, C. Metcalf, K.
Pommerenke, D. H. Reiley,
C. Rojas, and J. Stodder), The Journal of Economic Education (2008), 39