We study the design of mechanisms satisfying a novel desideratum: privacy. This requires the mechanism not reveal 'much' about any agent's type to other agents. We propose the notion of joint differential privacy: a variant of differential privacy used in the privacy literature. We show by construction that mechanisms satisfying our desiderata exist when there are a large number of players, and any player's action affects any other's payoff by at most a small amount. Our results imply that in large economies, privacy concerns of agents can be accommodated at no additional 'cost' to standard incentive concerns.

Systemic risk must include the housing market, though economists have not generally focused on it. We begin construction of an agent-based model of the housing market with individual data from Washington, DC. Twenty years of success with agent-based models of mortgage prepayments give us hope that such a model could be useful. Preliminary analysis suggests that the housing boom and bust of 1997-2007 was due in large part to changes in leverage rather than interest rates.

Revealing Preferences Graphically: An Old Method Gets a New Tool Kit by Syngjoo Choi, Raymond Fisman, Douglas M. Gale and Shachar Kariv. Published in volume 97, issue 2, pages 153-158 of American Economic Review, May 2007

Corrective taxes can solve many market failures, but actual policies frequently deviate from the theoretical ideal because of administrative or political constraints. We present a method to quantify the efficiency costs of constraints on externality-correcting policies or, more generally, the costs of imperfect pricing, using simple regression statistics. Under certain conditions, the R2 and the sum of squared residuals from a regression of true externalities on policy variables measure relative welfare gains from policies. We illustrate via four empirical applications: random mismeasurement of externalities, imperfect electricity pricing, heterogeneity in the longevity of energy-consuming durable goods, and imperfect spatial policy differentiation.

After a natural experiment is first used, other researchers often reuse the setting, examining different outcome variables. We use simulations based on real data to illustrate the multiple hypothesis testing problem that arises when researchers reuse natural experiments. We then provide guidance for future inference based on popular empirical settings including difference‐in‐differences, instrumental variables, and regression discontinuity designs. When we apply our guidance to two extensively studied natural experiments, business combination laws and the Regulation SHO pilot, we find that many results that were statistically significant using single hypothesis testing do not survive corrections for multiple hypothesis testing.

We study managerial incentive provision under moral hazard when growth opportunities arrive stochastically and pursuing them requires a change in management. A trade‐off arises between the benefit of always having the “right” manager and the cost of incentive provision. The prospect of growth‐induced turnover limits the firm's ability to rely on deferred pay, resulting in more front‐loaded compensation. The optimal contract may insulate managers from the risk of growth‐induced dismissal after periods of good performance. The evidence for the United States broadly supports the model's predictions: Firms with better growth prospects experience higher CEO turnover and use more front‐loaded compensation.

We introduce dynamic agency into the neoclassical q theory of investment. Costly external financing arises endogenously from dynamic agency, and influences firm value and investment. Agency conflicts drive a history-dependent wedge between average q and marginal q, and make the firm’s investment policy dependent on realized profits. A larger realized profit induces higher investment, and hence a larger firm. Investment is relatively insensitive to average q when the firm is “financially constrained ”(i.e. has low financial slack). Conversely, investment is sensitive to average q when the firm is relatively “financially unconstrained,” (i.e. has high financial slack). Moreover, the agent’s optimal compensation is in the form of future claims on the firm’s cash flows when the firm’s past profits are relatively low and the firm has less financial slack, whereas cash compensation is preferred when the firm has been profitable, agency concerns are less severe, and the firm is growing rapidly. To study the effect of serial correlation of productivity shocks on investment and firm dynamics, we extend our model to allow the firm’s output price to be stochastic. We show that, in contrast to static agency models, the agent’s compensation in the optimal dynamic contract will depend not only on the firm’s past performance, but also on output prices, even though they are beyond the agent’s control. This dependence of the agent’s compensation on exogenous output prices (for incentive reasons) further feeds back on the firm’s investment, and provides a channel to amplify and propagate the response of investment to output price shocks via dynamic agency.

From 1997 to March 2000, as technology stocks rose more than five‐fold, institutions bought more new technology supply than individuals. Among institutions, hedge funds were the most aggressive investors, but independent investment advisors and mutual funds (net of flows) actively invested the most capital in the technology sector. The technology stock reversal in March 2000 was accompanied by a broad sell‐off from institutional investors but accelerated buying by individuals, particularly discount brokerage clients. Overall, our evidence supports the bubble model of Abreu and Brunnermeier (2003), in which rational arbitrageurs fail to trade against bubbles until a coordinated selling effort occurs.

This paper investigates how a foreign firm's decision to cross‐list on a U.S. stock exchange is related to the consumption of private benefits of control by its controlling shareholders. Theory has proposed that when private benefits are high, controlling shareholders are less likely to choose to cross‐list in the United States because of constraints on the consumption of private benefits resulting from such listings. Using several proxies for private benefits related to the control and cash flow ownership rights of controlling shareholders, we find support for this hypothesis with a sample of more than 4,000 firms from 31 countries.