Curriculum Vitae: [PDF]

Job Market Paper

"Relational Contracts, Financing Constraints, and Social Welfare"

Abstract: This paper analyzes the interaction between relational contracting and the quality of financial markets by considering both contractual and financing frictions. I study a simple model in which a downstream firm (the buyer) sources components from an upstream firm (the supplier). The parties interact without the benefit of a formal contract and due to imperfections in financial markets, the supplier has limited access to credit. The buyer is then required to cover a fraction of the investment cost. I characterize the whole set of efficient self-enforcing contracts and analyze how they are affected by the magnitude of the financing friction. If the supplier has strong bargaining power, less efficient financial markets may be beneficial to social welfare. If the buyer has strong bargaining power, on the other hand, less efficient financial markets are always welfare-reducing. The model also predicts that the productivity of the partnership increases with the length of the relationship. After a finite number of periods, however, the relationship "matures" and every efficient self-enforcing contract converges to a stationary agreement that maximizes social welfare among the class of all self-enforcing contracts. During the "transition phase", investment decisions are distorted, resulting in either under- or over-investment. Over time, the inefficiencies decrease and investment monotonically approaches its first-best level.

Other Papers and Work in Progress

"Investment Cycles, Expropriation Risk, and Political Uncertainty" (coming soon)

Abstract: I analyze how expropriation risk shapes the dynamics of foreign investment and taxes in developing economies. Different from previous work, my model recognizes that: (i) expropriation risk not only depends on the capacity of local authorities to deprive foreign investors from its investment, but also on the incentives to do so; and that (ii) due to the complexity of the political and social contexts of developing countries, these incentives change frequently and may not be directly observable to foreigners observers. I formalize this idea in a simple way. On addition to the standard assumption that the government cannot commit to a particular tax policy, I assume that it can experience a political shock. In periods in which the shock is realized, the government's marginal utility of consumption raises, increasing the incentives to expropriate. Information asymmetries arise as the shock is the government's private information. The main contribution of the paper is to show that the long-run behavior of investment is closely related to the nature of political uncertainty. In particular, when the probability of the shock is low and its intensity is high, investment's volatility is high and all efficient self-enforcing contracts feature long-run investment cycles. The model has a rich set of implications which are consistent with empirical findings: i) as long as the expected tax rate is positive, efficient self-enforcing contracts provide insurance to the government in the form of state-contingent taxes; ii) the probability of future expropriation is always positive; and iii) the economy features expropriation cycles with positive probability.

“Team Coordination and Career Concerns”, in progress

“Market Liquidity and Ambiguity Aversion”, in progress

Additional Material

Research Statement: [PDF]

Teaching Statement: [PDF]

References

Prof. Wojciech Olszewski (Committee Chair)
Prof. Jeff Ely
Prof. Jin Li