Research
Research
This paper investigates the underlying causes of heterogeneity in both the timing and quality of buyers’ replacement of durable goods, and examines how interest rates influence the trading decisions of buyers and sellers. I develop a model of differentiated durable goods that incorporates search frictions and failure rates. The interaction between these factors leads ex ante homogeneous buyers and sellers to sort themselves into submarkets characterized by heterogeneous prices and expected residual lifespans of products. I demonstrate that a unique equilibrium exists in this setting. The model reveals that buyers’ optimal replacement decisions are monotonic in quality, partitioning the state space into two non-degenerate regions of action and inaction, thus generalizing common frameworks in the durable goods literature. Furthermore, I show that a decrease in interest rates enhances product quality and increases the fraction of buyers in the inaction region.
Strategic complementarities in durable consumption can explain persistent growth differences among economies with similar fundamentals. I show this by introducing consumers into models of endogenous innovation: their concern for relative standing turns replacement decisions into a coordination game. These complementarities forge a self-reinforcing replacement–innovation loop: upgrades today raise the average quality, increase the return to R&D, push the frontier forward, and shorten the useful life of existing goods—prompting further upgrades. The loop naturally limits technological differentiation to the qualities buyers actually adopt and, when strong enough, yields multiple balanced growth paths. Optimistic beliefs about others’ upgrading ignite replacement and R&D, locking in a high-growth regime; pessimistic beliefs mute both and trap the economy in low growth. Because equilibrium selection is expectation-driven, temporary coordination policies (e.g., replacement subsidies or standard-setting) can durably tip the economy onto the superior path.
We develop a model of asset issuance into an asset market with search frictions and asymmetric information. A monopolistic underwriter screens entrepreneurs' projects and sorts them into different markets characterized by heterogeneous levels of trading frictions. Indirectly, the underwriter affects liquidity (spreads) in the OTC market, where investors with complete information and dealers with asymmetric information interact. We show that a separating contract helps reduce the spreads, as compared to a pooling contract. The model can partially explain why different tiers, with different liquidity levels, are offered to firms of different quality.
We study optimal taxation in economies with general equilibrium market clearing, where agents with privately known labor skills and entrepreneurial abilities choose between deterministic labor income and risky firm operation. The government observes labor income and realized dividends but not effort, or technology shocks. We formulate the multidimensional screening problem as a lottery-based linear optimization, accounting for global incentive constraints, fixed costs and other non-convexities. Optimal policies exhibit tax breaks, which can render net taxes negative, for agents with intermediate entrepreneurial abilities and labor skills above a threshold. General equilibrium strengthens this effect under decreasing returns, as labor-market clearing requires sufficient entry into entrepreneurship, further increasing subsidies for agents with high worker options. In a calibrated U.S. economy, optimal taxes are lower and can be negative for low-profit realizations. Subsidies rise when risk declines and when the frequency of high-ability entrepreneurs in the population diminishes.
To what extent is the pace of technology deployment governed by cross-sectoral coordination rather than the supply of ideas? Two new facts motivate the theory: textual analysis of 10-K filings reveals that innovation language is idiosyncratic across sectors while implementation language is synchronized; and matching breakthrough patents to adoption dates uncovers a median nine-year implementation delay. To study this, I develop and estimate a dynamic network model in which deploying frontier technology in one sector is more productive when complementary sectors deploy it too, but innovation is sector-specific. Adoption decisions are strategic complements: when connected sectors implement frontier knowledge, the return to implementation rises, inducing further adoption. The strength of this feedback varies across sectors–those with large technology gaps amplify incoming spillovers, while those with small gaps dampen them. The feedback is self-reinforcing in both directions: in the pessimistic equilibrium, low adoption depresses licensing revenue, which reduces R&D, shrinks the stock of frontier technologies, and makes future coordination harder; in the optimistic equilibrium, widespread deployment raises R&D returns, accelerates innovation, and sustains an implementation wave. Whether coordination failures arise is governed by the Network Implementation Multiplier (NIM), a sufficient statistic for the strength of complementarities. Above one, the economy admits multiple equilibria. Estimating the NIM across 300 U.S. sectors, I find it to be 1.82, crossing unity around 2013.
In the post 1980s, the U.S. experienced a significant increase in both public and private debt. This increase was sustained by the saving glut of the rich, a large accumulation of assets from the top 1% of earners. We build a NK model with borrowers and savers and redistributive policies that can be funded or unfunded. Unfunded transfers induce fiscal inflation, which erodes the real value of public and private debt, with redistribution occurring through revaluation effects. Funded transfers are instead backed by future taxation on the rich and raise both government and household debt, with redistribution occurring through expected changes in the fiscal burden on high earners. Our structural estimation shows that a shift from unfunded to funded spending in the early 1980s contributed to the saving glut of the rich.