- “Decentralized Exchange” (with S.
Malamud), The 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),
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.
- “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.
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
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
- “JOBS and SOX:
Information Design and Capital Formation” (with A. Carvajal and G. Sublet), The
Journal of Economic Theory, Revise and Resubmit. 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.
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