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Working Paper
Litigation risk, strategic disclosure and the underpricing of initial public offerings
Using word content analysis on the time-series of IPO prospectuses, we find evidence that issuers trade off underpricing and strategic disclosure as potential hedges against litigation risk. This tradeoff explains a significant fraction of the variation in prospectus revision patterns, IPO underpricing, the partial adjustment phenomenon, and litigation outcomes. We find that strong disclosure is an effective hedge against all lawsuits. Underpricing, however, is an effective hedge only against the incidence of Section 11 lawsuits, those lawsuits which are most damaging to the underwriter. ...
Working Paper
Are household surveys like tax forms: evidence from income underreporting of the self-employed
There is a large literature showing that the self-employed underreport their income to tax authorities. In this paper, we quantify the extent to which the self-employed also systematically underreport their income in U.S. household surveys. To do so, we use the Engel curve describing the relationship between income and expenditures of wage and salary workers to infer the actual income, and thus the reporting gap, of the self-employed based on their reported expenditures. We find that the self-employed underreport their income by about 30 percent. This result is remarkably robust across data ...
Working Paper
Too big to cheat: Efficiency and Investment in Partnerships
Private information may limit insurance possibilities when a few agents form a partnership to pool idiosyncratic risk. We show that these insurance possibilities can improve if the partnership's income depends on capital accumulation and production, because cheating distorts investment. As agents' weights in the partnership increase, they are more affected by the investment distortion, and their incentives to misreport under the full information allocation are reduced. In the long run, either one of the partners is driven to immiseration, or both partners' lifetime utilities are approximately ...
Working Paper
Information disclosure and exchange media
When commitment is lacking, intertemporal trade is facilitated with the use of exchange media?interpreted broadly to include monetary and collateral assets. We study the properties of a model commonly used to motivate monetary exchange, extended to include a physical asset whose expected short-run return is subject to a news shock, but whose expected long-run return is stable. The nondisclosure of news enhances the asset?s property as an exchange medium, and generally improves social welfare. When a nondisclosure policy is infeasible, the framework admits a role for government debt, including ...
Working Paper
Optimal disclosure policy and undue diligence
While both public and private financial agencies supply asset markets with large amounts of information, they do not generally disclose all asset-related information to the general public. This observation leads us to ask what principles might govern the optimal disclosure policy for an asset manager or financial regulator. To investigate this question, we study the properties of a dynamic economy endowed with a risky asset, and with individuals that lack commitment. Information relating to future asset returns is available to society at zero cost. Legislation dictates whether this ...
Speech
Three issues in learning and monetary policy
Presented at Adaptive Learning in Macroeconomics. Sponsored by the Centre for International Macroeconomics and Finance (CIMF) and the Faculty of Economics of the University of Cambridge.
Working Paper
Optimal monetary policy in a model of money and credit
The authors study optimal monetary policy in a model in which fiat money and private debt coexist as a means of payment. The credit system is endogenous and allows buyers to relax their cash constraints. However, it is costly for agents to publicly report their trades, which is necessary for the enforcement of private liabilities. If it is too costly for the government to obtain information regarding private transactions, then it relies on the public information generated by the private credit system. If not all private transactions are publicly reported, the government has imperfect public ...
Speech
U.S. experience with bank stress tests
Based on remarks at the Group of 30 plenary meeting, Bern, Switzerland.
Speech
Financial stability and economic growth
Remarks at the 2011 Bretton Woods Committee International Council Meeting, Washington, D.C.>
Speech
Factors affecting efforts to limit payments to AIG counterparties
Testimony before the Committee on Government Oversight and Reform, U.S. House of Representatives.