- “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
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
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, 28, 10 (2015), 2946-2992. 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