The theoretical papers providing important contributions to dynamic models of trade with adverse selection. This is an important field that has gained a lot of attention since the financial crisis has highlighted the importance of incentives and adverse selection in financial markets. Our models should provide guidance to policymakers regarding the challenges of regulating these markets. Among our novel contributions we can highlight:
1) A better understanding of how traders of assets with correlated payoffs might coordinate on different equilibria some with implications for trade volume and welfare.
2) How transparency of trading information might in some cases be welfare enhancing while in others not.
3) How trading data from decentralized trades aggregates (o fails to aggregate) relevant information about the state of the economy.
4) That providing traders with information from past trades, for example by introducing benchmarks based on those past trades, might actually change the information content of those past trades.
5) Providing a novel model that shows how market sentiments, asset liquidity and prices are jointly determined. Highlighting how these sentiments might generate aggregate volatility and that this volatility might be a necessary feature of equilibria.
We have shown theoretically and provided empirical evidence on how weak contract enforcement con help rationalize why countries with the worse rule of law might exhibit: (i) higher aggregate TFP volatilities, (ii) larger dispersion of firm-level productivity, and (iii) greater wage inequality.
Our paper on Optimal Arrangements for distribution examines supply-side barriers in a setting with limited contract enforcement. We show that the optimal self-enforcing arrangement can be implemented by providing vendors with a line of credit and the option to buy additional units at a fixed price. Moreover, the structure of this arrangement is optimal both for profit-maximizing firms and for non-profit organizations with limited resources. We field test in rural Uganda. We find that the model-implied optimal arrangement increased distribution significantly. However, growth was lower than predicted because vendors (i) were unwilling to extend credit to customers and (ii) did not have access to a reliable savings technology.
Our working paper on SMS training is an important proof of concept of the use of this technology for training purposes. The technology involves negligible marginal costs and requires only basic cell phone coverage. We conducted a large-scale RCT, which manipulated the timing of the training for thousands micro-retailers in Kenya. The treatment group reports higher revenue, greater financial resilience, more extensive usage of formal bookkeeping, and better understanding of financial concepts.
