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Working Paper
The Political Economy of Underfunded Municipal Pension
This paper analyzes the determinants of underfunding of local government?s pension funds using a politico-economic overlapping generations model. We show that a binding down payment constraint in the housing market dampens capitalization of future taxes into current land prices. Thus, a local government?s pension funding policy matters for land prices and the utility of young households. Underfunding arises in equilibrium if the pension funding policy is set by the old generation. Young households instead favor a policy of full funding. Empirical results based on cross-city comparisons in the ...
Working Paper
Capitalization as a Two-Part Tariff: The Role of Zoning
This paper shows that the capitalization of local amenities is effectively priced into land via a two-part pricing formula: a ticket" price paid regardless of the amount of housing service consumed and a slope" price paid per unit of services. We first show theoretically how tickets arise as an extensi ve margin price when there are binding constraints on the number of households admitted to a neighborhood. We use a large national dataset of housing transactions, property characte ristics, and neighbor- hood attributes to measure the extent to which local amenities are capitalized in ticket ...
Working Paper
Capital structure and firm performance: a new approach to testing agency theory and an application to the banking industry
Corporate governance theory predicts that leverage affects agency costs and thereby influences firm performance. We propose a new approach to test this theory using profit efficiency, or how close a firm's profits are to the benchmark of a best-practice firm facing the same exogenous conditions. We are also the first to employ a simultaneous-equations model that accounts for reverse causality from performance to capital structure. We also control for measures of ownership structure in the tests. We find that data on the U.S. banking industry are consistent with the theory, and the results are ...
Working Paper
Investor Demands for Safety, Bank Capital, and Liquidity Measurement
We construct a model of a bank's optimal funding choice, where the bank negotiates with both safety-driven short-term bondholders and (mostly) risk-taking long-term bondholders. We establish that investor demands for safety create a negative relationship between the bank's capital choices and short-term funding, as well as negative relationships between capital and common measures of bank liquidity. Consistent with our model, our bank-level empirical analysis of these capital-liquidity tradeoffs show (1) that bank liquidity measures have a strong and negative relationship to its capital ratio ...