- Equilibrium Theory of Financial Markets: Recent Developments
(with J. H. Yoon), prepared for The Journal of Economic Literature. PDF
- Decentralized Exchange (with S. Malamud), The
American Economic Review 107, 11 (2017). 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
- Design of Synthetic Financial Products in Decentralized Markets
(with J. H. Yoon). PDF
- Innovation in Decentralized Markets: Synthetic Products vs.
Trading Technology (with J. H. Yoon). PDF
- Exchange Design and Efficiency (with J. H. Yoon),
Econometrica 89, 6 (2021). PDF
- Improving Access to
Information Through Market Design (with X. Wu). PDF
- Design of Market-Clearing Technology (with C. Lyu and J. H.
- Bilateral Market Power in Fragmented Markets (with S.
Groups/Equilibrium and Stability/Games in Contracts
- Matching with Multilateral Contracts (with N.
- Matching with Complementary Contracts (with N.
Yoder), PDF, Econometrica 88, 5 (2020, lead article).
- Games in Contracts: Formal and Informal Institutions (with R.
Dix and J. H. Yoon).
- Complementarity in Matching, Games, and Exchange Economies
(with N. Yoder), R&R at Journal of Economic Theory. PDF
Theory and Design
of Imperfectly Competitive Markets/Divisible Good Markets/Centralized Markets
- Price Inference in Small Markets (with M.
Weretka), Econometrica 80, 2 (2012). 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 Studies 81, 4 (2014). 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.
- Dynamic Thin Markets (with M. Weretka), The Review of Financial Studies, 28, 10 (2015). 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). 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 model of imperfectly
competitive markets (double auction/multilateral oligopoly) 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 Imperfectly Competitive Markets: A Non-Recursive
Approach (with J. H. Yoon). PDF
- Dynamic Imperfectly Competitive Markets 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.
Optimization and Games
in Spans: Applications to Financial Innovation, Information Disclosure, and
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
- Competition in Financial
Innovation (with A. Carvajal and M. Weretka),
Econometrica 80, 5 (2012). 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). 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.
- Quantile Maximization in
Decision Theory, The Review
of Economic Studies 77 (2010). 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.
- Price 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 (3).
- Thin Markets (with M. Weretka), The New Palgrave Dictionary of Economics
Online (2008), Steven N. Durlauf and
Lawrence E. Blume, Eds. Palgrave Macmillan.