- “Decentralized Exchange” (with S.
American Economic Review 107, 11 (2017), 3320-3362. PDF
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. Decentralized trading can
improve allocation of risk among traders relative to centralized
Decentralized Markets” (with S. Malamud).
- “Decentralized Markets
and Derivatives” (with J. H. Yoon).
- “Matching with
Multilateral Contracts” (with N. Yoder). PDF
Theory and Design
of Noncompetitive Markets/Divisible Good Markets/Centralized 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: Price informativeness can be higher in smaller markets.
- “Demand Reduction and Inefficiency in
Multi-Unit Auctions” (with with L. Ausubel, P.
Cramton, M. Pycia, and M. Weretka),
The Review of Economic
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
- “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. This paper provides an equilibrium model with 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.
- “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 capita welfare.
- “Privacy in Markets” (with M. Ollar
and J. H. Yoon), PDF.
This paper builds a dynamic noncompetitive (double
auction/multilateral oligopoly) model with learning. The model allows
analysis of how transparency and, more generally, the design of demand
conditioning on statistics of current and past behavior affects
equilibrium trading and efficiency.
- “Dynamic Noncompetitive Trading with Heterogeneous Traders”
(with J. H. Yoon).
- “Supply Function Games with General Gaussian Information
Structures” (with J. H. Yoon), available by e-mail.
- “Core Selection in Auctions and Exchanges” (with N.
Games in Spans: Applications to Financial Innovation, Information Disclosure,
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
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.
- “Information Design and
Capital Formation” (with A. Carvajal
and G. Sublet), The Journal of Economic Theory 176 (2018),
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.
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
- “Thin Markets” (with M. Weretka), The
New Palgrave Dictionary of Economics Online (2008), Steven N. Durlauf and Lawrence E. Blume, Eds. Palgrave