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Working Paper
A Theory of Sticky Rents: Search and Bargaining with Incomplete Information
The housing rental market offers a unique laboratory for studying price stickiness. This paper is motivated by two facts: 1. Tenants? rents are remarkably sticky even though regular and expected recontracting would, by itself, suggest substantial rent flexibility. 2. Rent stickiness varies significantly across structure type; for example, detached unit rents are far stickier than large apartment unit rents. We offer the first theoretical explanation of rent stickiness that is consistent with these facts. In this theory, search and bargaining with incomplete information generates stickiness in ...
Report
Specialization in Banking
Using highly detailed data on the loan portfolios of large U.S. banks, we document that these banks "specialize" by concentrating their lending disproportionately into one industry. This specialization improves a bank’s industry-specific knowledge and allows it to offer generous loan terms to borrowers, especially to firms with access to alternate sources of funding and during periods of greater nonbank lending. Superior industry-specific knowledge is further reflected in better loan and, ultimately, bank performance. Banks concentrate more on their primary industry in times of instability ...
Report
Faster payments: market structure and policy considerations
The U.S. payments industry is in the process of developing ubiquitous, safe, faster electronic solutions for making a broad variety of business and personal payments. How this market for faster payments will evolve will be shaped by a range of economic forces, such as economies of scale and scope, network effects, switching costs, and product differentiation. Emerging technologies could alter these forces and lead to new organizational arrangements or market structures that are different from those in legacy payment markets to date. In light of this uncertainty, this paper examines three ...
Report
What do drug monopolies cost consumers in developing countries?
This paper quantifies the effects of drug monopolies and low per-capita income on pharmaceutical prices in developing economies using the example of the antiretroviral drugs (ARVs) used to treat HIV.
Working Paper
Should Platforms be Allowed to Charge Ad Valorem Fees?
Many platforms that facilitate transactions between buyers and sellers charge ad valorem fees in which fees depend on the transaction price set by sellers. Given these platforms do not incur significant costs that vary with transaction prices, their use of ad valorem fees has raised controversies about the efficiency of this practice. In this paper, using a model that connects platforms' use of ad valorem fees to third-degree price discrimination, we evaluate the welfare consequences of banning such fees. We find the use of ad valorem fees generally increases welfare, including for calibrated ...
Working Paper
Overconfidence, Subjective Perception, and Pricing Behavior
We study the implications of overconfidence for price setting in a monopolistic competition setup with incomplete information. Our price-setters overestimate their abilities to infer aggregate shocks from private signals. The fraction of uninformed firms is endogenous; firms can obtain information by paying a fixed cost. We find two results: (1) overconfident firms are less inclined to acquire information, and (2) prices might exhibit excess volatility driven by nonfundamental noise. We explore the empirical predictions of our model for idiosyncratic price volatility.
Working Paper
Project modifications and bidding in highway procurement auctions
This paper examines bidding behavior in a setting where post-bid-letting project modifications occur. These modifications change both the costs and payouts to the winning contractor, making the contract incomplete. Recent empirical research shows that bidders incorporate the likelihood of such changes in contracts into their bidding strategies. In particular, contractors may adjust bids to compensate for renegotiation, resequencing of tasks, and other costs associated with project modifications. This paper extends this literature by examining bidding behavior and project modifications in ...
Working Paper
Faster Payments : Market Structure and Policy Considerations
The U.S. payments industry is in the process of developing ubiquitous, safe, faster electronic solutions for making a broad variety of business and personal payments. How this market for faster payments will evolve will be shaped by a range of economic forces, such as economies of scale and scope, network effects, switching costs, and product differentiation. Emerging technologies could alter these forces and lead to new organizational arrangements or market structures that are different from those in legacy payment markets to date. In light of this uncertainty, this paper examines three ...