Writings on microeconomic theory and finance

The dissertation explores both theoretical microeconomics and empirical finance. The first chapter studies the problem of a durable-goods monopolist with commitment who sells to strategic, dynamically arriving buyers. Since buyers are forward-looking, it may seem that the seller should randomize in order to not fully reveal the timing of price reductions. However, when buyer types are single-dimensional and buyer utilities are all risk-neutral (linear) in price, the seller optimally chooses a deterministic price path, so that buyers know future prices with certainty. This is in contrast to stochastic results for related mechanism design problems and cases when buyers are risk-averse, and provides a justification for pure-strategy pricing used in many models of intertemporal price discrimination. I consider two applications of the framework, one where consumers are all present from the beginning of the market, and one where consumers arrive at a constant rate over time. In the first model, prices decline smoothly and the seller can perfectly separate types. In the second case, the seller-optimal price path exhibits smooth and volatile phases, and is cyclical, with regularly-timed price reductions. Buyer types are not perfectly separated in this case, which leads the seller to sometimes change price discontinuously. Chapter 2 is coauthored with my advisor Gabriel Carroll and we study a class of models of moral hazard in which a principal contracts with a counterparty, which may have its own internal organizational structure. The principal has non-Bayesian uncertainty as to what actions might be taken in response to the contract, and wishes to maximize her worst-case payoff. We show that if the possible responses to any given contract satisfy two properties-a richness and a responsiveness property-then a linear contract is optimal. This framework thus delineates a broad range of models in which linear contracts are optimally robust to uncertainty, including not only direct contracting with an agent, but also various models of hierarchical contracting and contracting with teams of agents. We also further apply the modeling apparatus to compare the principal's payoffs across different organizational structures. The final chapter is coauthored with John Shoven. In it we present a thorough evaluation of target date funds for the period 2010--2020. Target date funds have grown enormously in assets, reaching $1.4 trillion at the end of 2019, and account for approximately 24% of all assets in 401(k) accounts. We report on the results of a style analysis evaluation of TDFs that determines their effective asset allocation. It examines both the constant in the style analysis regressions and resulting Sharpe ratios, which reflect the over- or under-performance of the funds relative to a passive benchmark with the same asset allocation. Lower cost TDFs tend to match the benchmark returns, while higher cost TDFs deviate from them considerably. We examine how TDFs performed in the stock market crash between February 19 and March 23, 2020, during which five-week period broad market averages fell by about one-third. We find that the value of long-dated TDFs (those with a target date of 2045 and beyond) fell by between 30% and 35%, while the 2025 funds, designed for people roughly 60 years old, lost between 20% and 25% of their value. We find that past performance only weakly influences future expected performance. As with equity funds in general in this period, TDFs with actively managed ingredient funds, on average, trailed the performance of their cheaper passively managed counterparts

Keywords: Economics.
Advisor: Carroll Gabriel
Jackson Matthew O. 
Larsen Bradley J.