R&R at the Journal of Finance
Abstract: I introduce a model where entrepreneurs self-select into venture capital funds and value-added from venture capitalists (VCs) (i) decreases as their funds grow and (ii) complements entrepreneurs' quality. Aiming to commit high value-added, thereby attract high-quality entrepreneurs, (too many) VCs raise small funds. By doing so, they worsen the pool of entrepreneurs who select in the low value-added segment of the venture capital market: aggregate fundraising is inefficiently small. Subsidizing entry of less skilled VCs, by affecting entrepreneurs sorting, induces a Pareto-improvement. The model also rationalizes the emergence of limited partnerships, independently of whether they are the efficient fund structure.
Work in Progress:
Persuading Experts in OTC Markets, 2020 (draft coming soon)
Abstract: In an OTC market, originators in need of liquidity sell their assets to investors with market power. Investors can acquire expertise—information about originators asset quality and outside options. Their incentive to do so reflects screening and rent-seeking motives, and depends on their beliefs about average assets quality (the state of the economy). Investors' information, through its effects on prices, motivates good assets origination. By designing a disclosure policy, regulators who are informed about the state of the economy can better align investors incentives to their needs.
Equilibrium Margin Setting and Systemic Risk, 2020
(with Jing Zeng)
A Model of Risk Taking With Experimentation and Career Concerns (draft available upon request)
(with Gianpaolo Caramellino)
Abstract: We model an economy where managers create value through their ability to learn at an intermediate stage about the intrinsic profitability of a risky investment. Managers are heterogeneous in their ability to extract information from experiments, and care about their reputation. Their incentive to take on risk is distorted by career concerns, and can result in under or over risk-taking. This is determined by whether discarding a risky project following the experiment is more typical of better managers. We also show that, in an effort to appear informed, managers at the same time reduce risk-taking when investments are only marginally positive NPV, and engage in excessive costly experimentation when investments are more profitable.