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Report
Migration, Congestion Externalities, and the Evaluation of Spatial Investments
The direct benefits of infrastructure in developing countries can be large, but if new infrastructure induces in-migration, congestion of other local publicly provided goods may offset the direct benefits. Using the example of rural household electrification in South Africa, we demonstrate the importance of accounting for migration when evaluating welfare gains of spatial programs. We also provide a practical approach to computing welfare gains that does not rely on land prices. We develop a location choice model that incorporates missing land markets and allows for congestion in local land. ...
Discussion Paper
When Do Trade Frictions Increase Liquidity?
Economists tend to assume that frictions that limit trading in financial markets reduce liquidity and lower investor welfare. In this blog I discuss a recent staff study of mine that challenges that conventional wisdom. I explain how introducing trading frictions—such as circuit breakers—that slow or halt trading in an over-the-counter market experiencing a fire sale might, paradoxically, lead to higher liquidity and investor welfare.
Report
Liquidity and congestion
This paper studies the relationship between the endogenous arrival of investors to a market and liquidity in a search-based model of asset trading. Entry of investors causes two contradictory effects. First, it reduces trading costs, which attracts new investors (the externality effect). But second, as investors concentrate on one side of the market, the market becomes ?congested,? decreasing the returns to investing and discouraging new investors from entering (the congestion effect). The equilibrium level of liquidity depends on which of the two effects dominates. When congestion is the ...
Report
Congestion and cascades in payment systems
We develop a parsimonious model of the interbank payment system to study congestion and the role of liquidity markets in alleviating congestion. The model incorporates an endogenous instruction arrival process, scale-free topology of payments between banks, fixed total liquidity that limits banks' capacity to process arriving instructions, and a global market that distributes liquidity. We find that at low liquidity, the system becomes congested and payment settlement loses correlation with payment instruction arrival, becoming coupled across the network. The onset of congestion is evidently ...