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1. A Dynamic Theory of Learning and Relationship Lending

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Title:
A Dynamic Theory of Learning and Relationship Lending
Author:
Varas, Felipe and Hu, Yunzhi
Collector:
Varas, Felipe and Hu, Yunzhi
Description:
We introduce private learning into a banking model to study the dynamics of relationship lending. In our model, an entrepreneur chooses between bank and market financing. Bank lending facilitates learning over time, but it subjects the borrower to the downside of information monopoly. We construct an equilibrium in which the entrepreneur starts with bank financing and subsequently refinances with the market, and we find conditions under which this equilibrium is unique. Our model generates several novel results. First, both information asymmetry and entrepreneur's reputation are accumulated over time. As a result, the bank will roll over bad loans for entrepreneurs who have accumulated enough reputation for the prospect of future loan sales. Second, this incentive to extend and pretend gets mitigated when the entrepreneur faces financial constraint. We further endogenize learning as bank's costly decision and show how it is affected by asymmetric information and financial constraint.
Date:
2019
Notes:
Presented at SITE on August 7, 2019

2. A Macroeconomic Model of Equities and Real, Nominal, and Defaultable Debt

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Title:
A Macroeconomic Model of Equities and Real, Nominal, and Defaultable Debt
Author:
Swanson, Eric
Collector:
Swanson, Eric
Description:
I show that a simple, fully structural New Keynesian model with Epstein-Zin preferences is consistent with a wide variety of asset pricing facts, such as the size and variability of risk premia on equities, real and nominal government bonds, and corporate bonds—the equity premium puzzle, bond premium puzzle, and credit spread puzzle, respectively. I thus show how to unify a variety of asset pricing puzzles from finance into a simple, structural framework. Conversely, I show how to bring standard macroeconomic models into agreement with a wide range of asset pricing facts.
Date:
2019
Notes:
Presented at SITE on August 19, 2019

4. A Quantity-Driven Theory of Term Premiums and Exchange Rates

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Title:
A Quantity-Driven Theory of Term Premiums and Exchange Rates
Author:
Sunderam, Adi, Greenwood, Robin, and Stein, Jeremy
Collector:
Sunderam, Adi, Greenwood, Robin, and Stein, Jeremy
Date:
2019
Notes:
Presented at SITE on September 5, 2019

5. A Theory of Human Capital Specialization

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Title:
A Theory of Human Capital Specialization
Author:
Alon, Titan and Fershtman, Daniel
Collector:
Alon, Titan and Fershtman, Daniel
Description:
This paper generalizes the canonical human capital model of Mincer (1958), Schultz (1961), and Becker (1964) to allow for human capital accumulation through specialization, nesting the original model as a special case. Individuals dynamically decide how to allocate their time between working and studying across an arbitrary number of heterogeneous activities under sequential uncertainty about the returns. We characterize the optimal time-allocation policy and show that it features gradual specialization, whereby individuals progressively narrow the range of skills they invest in as human capital accumulation proceeds. The optimal policy is also separable in the state space, which greatly reduces its computational complexity and renders the model empirically tractable even when the number of skills is large. We estimate the parameters of the model to match the distribution of earnings in the Census micro-data. Using the fitted model, we conduct several counter-factuals to quantitatively evaluate the contribution of this gradual specialization process to the formation of human capital, educational attainment, and income inequality. Our results affirm the classical conjecture that specialization is a critical determinant of human capital accumulation.
Date:
2019
Notes:
Presented at SITE on September 13, 2019

6. A Welfare Analysis of Occupational Licensing in U.S. States

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Title:
A Welfare Analysis of Occupational Licensing in U.S. States
Author:
Soltas, Evan and Kleiner, Morris
Collector:
Soltas, Evan and Kleiner, Morris
Description:
We assess the welfare consequences of occupational licensing for workers and consumers. We estimate a model of labor market equilibrium in which licensing restricts labor supply but also affects labor demand via worker quality and selection. On the margin of occupations licensed differently between U.S. states, we find licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 15 percent of occupational surplus. Consumers and workers each bear about half of the incidence. Higher willingness to pay offsets only 60 percent of higher prices for consumers, and higher wages compensate workers for only 70 percent of the cost of mandated investment in occupation-specific human capital.
Date:
2019
Notes:
Presented at SITE on July 9, 2019

7. Access to Alternatives: Increasing Rooftop Solar Adoption with Online Platforms

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Title:
Access to Alternatives: Increasing Rooftop Solar Adoption with Online Platforms
Author:
Dorsey, Jackson
Collector:
Dorsey, Jackson
Description:
As of 2016, only 1.1% of U.S. rooftops had solar panels despite government subsidy support and falling hardware costs. In this paper, I estimate a structural model of the residential solar PV market using new detailed data on seller bids and consumer choices. The results illustrate that search/informational frictions are an important barrier to solar PV adoption for two reasons: (1) installers can charge higher markups and (2) consumers fail to connect with high-quality sellers in the market. Counterfactuals simulations show that solar PV adoption increases by 84% when buyers can solicit additional price quotes through an online platform.
Date:
2019
Notes:
Presented at SITE on July 11, 2019

9. Aggregate Information Dynamics

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Title:
Aggregate Information Dynamics
Author:
Gorton, Gary
Collector:
Gorton, Gary
Date:
2019
Notes:
Presented at SITE on July 2, 2019

10. An Empirical Framework for Matching with Imperfect Competition

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Title:
An Empirical Framework for Matching with Imperfect Competition
Author:
Kroft, Kory, Mourifie, Ismael, and Chan, Mons
Collector:
Kroft, Kory, Mourifie, Ismael, and Chan, Mons
Description:
This papers considers a static, many-to-one matching model of the labor market. Firms face inelastic labor supply curves and hence charge a markdown below marginal product. We assume that firms operate in an oligopsony labor market and thus allow for strategic interactions in wage setting. We provide a tractable characterization of the equilibrium and demonstrate existence and uniqueness. This characterization of the model equilibrium allows us to derive a rich set of comparative statics and then to gauge the relative contributions of worker skill, preference for amenities and imperfect competition on equilibrium wage inequality. We also illustrate identification of structural parameters and the estimation of complementarity between workers and firms using matched employer-employee data on the population of Danish workers.
Date:
2019
Notes:
Presented at SITE on August 29, 2019

11. An Equilibrium Model with Buy and Hold Investors

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Title:
An Equilibrium Model with Buy and Hold Investors
Author:
Wu, Tao
Collector:
Wu, Tao
Description:
This is the first paper to analyze the effects of buy and hold investors on equilibrium security price dynamics while previous studies mainly dealt with less general restricted participation case. The empirical literature suggests that many investors follow buy and hold strategies by rarely changing asset and flow allocations due to information costs or other frictions. Similar strategies are documented for institutional investors. A buy and hold investor effectively faces an incomplete market and differs in her pricing of risk from a dynamic asset allocator. The equilibrium is solved through the construction of a representative agent with state-dependent utility. The fraction of the stock held by the buy and hold investor emerges as an additional state variable. Characterizations of equilibrium quantities are given analytically as functions of the state variables. In contrast to most previous literature, stock return volatility is solved endogenously in this paper. A simple calibration of our model shows that the economy with buy and hold investors can simultaneously produce a low interest rate and a high Sharpe ratio for the stock. In addition, the buy and hold economy can deliver stock return volatility more than twice that in the limited participation economy, because the stock price is potentially more sensitive to dividend shocks in the buy and hold economy. Moreover, the buy and hold economy achieves this while keeping interest rate volatility at reasonably low levels at the same time. The intuition is related to the smaller impact of dividend shocks on the welfare weight in the buy and hold economy as both types of agents hold stocks. Finally, this paper is also among the first to solve a model with portfolio constraints when investors have potentially non-logarithmic utilities while previous literature mainly considered the case when the constrained investor has logarithmic utility and hence is myopic.
Date:
2019
Notes:
Presented at SITE on August 19, 2019

12. Are Intermediary Constraints Priced?

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Title:
Are Intermediary Constraints Priced?
Author:
Hebert, Ben, Du, Wenxin, and Huber, Amy W.
Collector:
Hebert, Ben, Du, Wenxin, and Huber, Amy W.
Description:
Violations of no-arbitrage conditions measure the shadow cost of constraints on intermediaries, and the risk that these constraints tighten is priced. We demonstrate in an intermediary-based asset pricing model that violations of no-arbitrage such as covered interest rate parity (CIP) violations, along with intermediary wealth returns, can be used to price assets. We describe a "forward CIP trading strategy" that bets on CIP violations becoming smaller, and show that its returns help identify the price of the risk that the shadow cost of intermediary constraints increases. This risk contributes substantially to the volatility of the stochastic discount factor, and appears to be priced consistently in U.S. treasury, emerging market sovereign bond, and foreign exchange portfolios.
Date:
2019
Notes:
Presented at SITE on September 6, 2019