2023 Theses Doctoral
Essays in Economic Theory
This dissertation looks at models in which agents make decisions under various economic frictions, and examines the role of their preferences. The first two chapters analytically characterize an infinite-horizon open economy under the friction of a stock collateral constraint, whereby borrowing is limited by the value of capital assets available. The model that is considered allows for general subjective discounting of households and fully variable productivity. The third chapter looks at a model of an ambiguity-averse benevolent mediator tasked with choosing a price contract at which a risk neutral buyer and seller transact an indivisible good under the friction of unquantifiable uncertainty of their reservation values.
The first chapter establishes that it is possible for households to enjoy the allocation they would obtain absent a stock collateral constraint under a condition that relates to their patience; this condition requires a long-run depression when agents are impatient relative to the market, and allows for an economic expansion when agents are more patient relative to the market. When this condition is not met, households are tightly constrained at least once and experience debt deleveraging in all periods and deflation of asset prices in periods preceding the constrained period relative to their unconstrained allocation. Households also ration their consumption more when they expect to be more tightly constrained in the future.
The second chapter is a sequel to the first chapter and shows that under constant output, agents who are impatient relative to the market can face two and three-period cycles in consumption, debt, and asset prices. Further, large initial debt can lead to multiple equilibria.
The third chapter considers a mediator who plays a Stackelberg game against Nature to maximize the distributionally worst-case expected weighted Nash product subject to known mean and boundary constraints on buyer and seller reservation values. We study the role of bargaining power and show that relative to what the buyer and seller themselves would choose when equipped with the mediator's information, the mediator's price contract has a shallow dependency on bargaining power, which is only exacerbated by the possibility of dependent buyer and seller values. Comparative statics results are obtained.
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More About This Work
- Academic Units
- Thesis Advisors
- MacLeod, William Bentley
- Schmitt-Grohe, Stephanie
- Ph.D., Columbia University
- Published Here
- January 18, 2023