- 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
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 trading.
- Design of Synthetic Financial Products in Decentralized Markets
(with J. H. Yoon). PDF
- Exchange Design and Efficiency (with J. H. Yoon), Revise
and resubmit, Econometrica. PDF
- Imperfectly Competitive Decentralized 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). 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 with Private
Information (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.
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
- 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.
- 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). 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