Related papers: Bailout Stigma
We consider a model of debt management, where a sovereign state trade some bonds to service the debt with a pool of risk-neutral competitive foreign investors. At each time, the government decides which fraction of the gross domestic…
We analyze reputation dynamics in an online market for illicit drugs using a novel dataset of prices and ratings. The market is a black market, and so contracts cannot be enforced. We study the role that reputation plays in alleviating…
Short sales are regarded as negative purchases in textbook asset pricing theory. In reality, however, the symmetry between purchases and short sales is broken by a variety of costs and risks peculiar to the latter. We formulate an optimal…
The paper investigates the effects of the credit market development on the labor mobility between the informal and formal labor sectors. In the case of Russia, due to the absence of a credit score system, a formal lender may set a credit…
Operational disruptions in retail payments can induce behavioral responses that outlast technical recovery and may amplify liquidity stress. We propose a multi-agent model linking card payment outages to trust dynamics, channel avoidance,…
The aim of this paper is to quantify and manage systemic risk caused by default contagion in the interbank market. We model the market as a random directed network, where the vertices represent financial institutions and the weighted edges…
We provide a unifying way to analyze how risk aversion changes bidding in auctions by asking which bids become more attractive as bidders become more risk averse. In first-price auctions, under two payoff conditions--winning is never worse…
Consumer protection rules require companies that deploy models to automate decisions in high-stakes settings to explain predictions to decision subjects. These rules are motivated, in part, by the belief that explanations can promote…
I show that firms price almost competitively and consumers can infer product quality from prices in markets where firms differ in quality and production cost, and learning prices is costly. Bankruptcy risk or regulation links higher quality…
This paper outlines a critical gap in the assessment methodology used to estimate the macroeconomic costs and benefits of climate policy. It shows that the vast majority of models used for assessing climate policy use assumptions about the…
Systemic risk arises as a multi-layer network phenomenon. Layers represent direct financial exposures of various types, including interbank liabilities, derivative- or foreign exchange exposures. Another network layer of systemic risk…
We explore a nuance to 'no arbitrage' in relation to 'information efficiency': acting immediately on an arbitrage is sometimes suboptimal; in such cases optimised trading can suppress the anticipation of predictable risk-outcomes, thereby…
Ride-sourcing platforms such as Uber and Lyft are prime examples of the gig economy, recruiting drivers as independent contractors, thereby avoiding legal and fiscal obligations. Although platforms offer flexibility in choosing work shifts…
Encouraged by decision makers' appetite for future information on topics ranging from elections to pandemics, and enabled by the explosion of data and computational methods, model based forecasts have garnered increasing influence on a…
Large language models are increasingly used to support high-stakes decisions, potentially influencing who is granted bail or receives a loan. Naive chain-of-thought sampling can improve average decision accuracy, but has also been shown to…
This paper characterizes the probability of a market failure defined as the default of two or more globally systemically important banks (G-SIBs) in a small interval of time. The default probabilities of the G-SIBs are correlated through…
While large language models (LLMs) are increasingly being explored for mental health applications, recent studies reveal that they can exhibit stigma toward individuals with psychological conditions. Existing evaluations of this stigma…
We introduce tools to capture the dynamics of three different pathways, in which the synchronization of human decision-making could lead to turbulent periods and contagion phenomena in financial markets. The first pathway is caused when…
We analyze statistical discrimination in hiring markets using a multi-armed bandit model. Myopic firms face workers arriving with heterogeneous observable characteristics. The association between the worker's skill and characteristics is…
An arbitrage strategy allows a financial agent to make certain profit out of nothing, i.e., out of zero initial investment. This has to be disallowed on economic basis if the market is in equilibrium state, as opportunities for riskless…