Run equilibria in the Green–Lin model of financial intermediation

We study the Green–Lin model of financial intermediation [E.J. Green, P. Lin, Implementing efficient allocations in a model of financial intermediation, J. Econ. Theory 109 (2003) 1–23] under a more general specification of the distribution of types across agents. We derive the efficient allocation in closed form. We show that, in some cases, the intermediary cannot uniquely implement the efficient allocation using a direct revelation mechanism. In these cases, the mechanism also admits an equilibrium in which some (but not all) agents “run” on the intermediary and withdraw their funds regardless of their true liquidity needs. In other words, self-fulfilling runs can arise in a generalized Green–Lin model and these runs are necessarily partial, with only some agents participating.     

Heterogeneous Beliefs and Learning about the Expected Return in a Market for a Short-Lived Asset

This paper examines the properties of asset prices in an economy in which the true expected return on an asset is unknown and investors have heterogeneous assessments of the expected return. The principal innovation of the analysis is that the formation and evolution of investors' beliefs are modeled in a Bayesian framework. Among other things, this allows one to operationalize the notion of investor confidence. The dispersion of beliefs is, in contrast to the findings of many existing studies, not vacuous for asset prices and, in fact, can have virtually any qualitative effect on asset prices depending on the parameterization. The model has implications for the volatility of asset prices and shows that learning can give rise to some unconventional relationships, such as an inverse relationship between asset prices and risk.     

Wage inequality and firm performance: Professional basketball's natural experiment

The purpose of this inquiry is to utilize a natural experiment from professional basketball to examine how wage inequality impacts the productivity of the firm. The literature suggests that wage inequality may promote firm productivity if higher wages are necessary to limit the damage potential of certain workers. In contrast, other writers have trumpeted the productivity gains from worker cooperation and thus, argued that wage disparity lowers firm output. During the 1990s, the National Basketball Association experienced dramatic increases in the level of wage inequality. The empirical evidence reported here supports a third possibility. Specifically, wage inequality and firm productivity are not related.     

Personality and ad-evoked feelings: The case for extraversion and neuroticism

Feeling responses to advertisements have been identified as important advertising effects. Considerable intersubject variance has been noted across those ad-evoked feelings. Conceptual models have proposed individual differences, including personality, as antecedents of adevoked feelings. In the psychology literature,extraversion andneuroticism have been shown to predict positive and negative affect, respectively. The current research proposes and tests relationships between extraversion and neuroticism and specific, transient feeling responses to ads. Additionally, the single traitaffect intensity, an alternative construal of individual differences in affective predispositions, is measured and compared with extraversion and neuroticism. Extraversion and neuroticism appear to be preferable, theoretically grounded predictors of adevoked feelings and consequent consumer attitudes. These findings should advance advertising managers’ understandings of differences across consumers in fundamental patterns of feeling responses to advertising. He received his Ph.D. in marketing from the University of Massachusetts at Amherst in 1994. His research has been published inPsychological Reports andAdvances in Consumer Research.     

Information acquisition,coordination, and fundamentals in a financial crisis

This paper reconciles the two explanations of a financial crisis, the self-fulfilling prophecy and the fundamental causes, in an empirically-relevant framework, by explicitly modeling the costly voluntary acquisition of information about fundamentals in a variant of Diamond and Dybvig [Diamond, D., Dybvig, P., 1983. Bank runs, deposit insurance, and liquidity. Journal of Political Economy 91, 401–419]. The model exhibits strategic complementarity in information acquisition. In the “partial run” equilibrium investors engage in costly evaluation of projects, so that banks with lower-return projects fail. There also exist the classic “full-run” and “no-run” equilibria in which there is no project evaluation. Investors’ coordination on a specific equilibrium is triggered by a self-fulfilling prophecy. So, financial crises are seen as both fundamentals-based and self-fulfilling prophecies-based phenomena.     

Why Have Debt Ratios Increased for Firms in Emerging Markets?

I study trends in capital structure between 1980 and 2004 in a sample of over 11,000 firms from 34 emerging markets. The average firm's market‐value debt ratio rose by 15 percentage points over this quarter century. I study how this rise in leverage was influenced by firm‐level factors and by the availability of debt financing at the country level. The central finding is that the increase in debt ratios can largely be attributed to changes in the characteristics of emerging market firms over this period. For the average firm, the most prominent determinants of capital structure – size, profitability, asset tangibility, and growth opportunities – all shifted in the direction implying a higher optimal level of debt. At the country level, increased financial development within the country is associated with lower debt ratios, but increased financial openness to foreign markets is associated with higher debt ratios.