Alkis Georgiadis-Harris

Research

Information Acquisition and the Timing of Actions (Online Appendix)

This paper develops a dynamic model of information acquisition in which the decision maker lacks control over the timing of her action. Dynamic experiments are constrained only in the quantity of information they can generate over any time interval. At the optimum, the decision maker concentrates resources in seeking a single piece of breakthrough evidence falsifying the current plan of action. Whenever the decision maker fails to obtain this evidence she becomes more confident in her intended action. Moreover, the arrival of breakthroughs leaves (shadow) costs unchanged. These features reveal three key motives driving the decision maker: a desire to hedge against the failure to obtain breakthroughs, the cost efficiency of the experiment, and a need to expedite the falsification of current plans.

Smart Contracts and the Coase Conjecture, with Thomas Brzustowski and Balázs Szentes  (Online Appendix) [Accepted, AER]

This paper reconsiders the problem of a durable-good monopolist who cannot make intertemporal commitments. The buyer’s valuation is binary and his private information. The seller has access to dynamic contracts and, in each period, decides whether deploy the previous period’s contract or to replace it with a new one. Our main result is that the Coase Conjecture fails: the monopolist’s payoff is bounded away from the low valuation irrespective of the discount factor.

Renegotiation, Commitment, and Bank Resolution, with Maximilian Guennewig  (New draft coming soon!)

A bank seeks to finance a risky asset of unknown quality by posting contracts to a market of investors. After financing but before maturity, information about the quality of the asset is publicly revealed. Parties cannot commit not to renegotiate the existing contracts, and the returns of the asset depend in part on costly actions borne by the ultimate equity holders. To this set-up we add a regulator who cares about welfare, and who can intervene by injecting costly public funds (bail-outs), and by coercively altering the private contractual arrangements. We interpret the last policy as a ‘bail-in.’ 

The distinctive feature of our environment is the lack of commitment by all parties. We derive necessary and sufficient conditions for when demandable-debt contracts arise. In those cases, the bank benefits from fragilities and endogenously generates inefficient liquidation, which prevents the regulator from conducting bail-ins. Consequently, even when bail-ins are available the regulator is incapable to commit not to bail-out. 

Bank Resolution and the Disciplining Effect of Demandable Debt, with Maximilian Guennewig

In a model with asymmetric information on asset returns, banks issue demandable debt if the government's preferred resolution strategy takes the form of bail-ins. Creditors then respond to news on bank fundamentals and subsequent runs on loss-absorbing debt render bail-ins ineffective. Controlling the maturity structure of debt has two benefits. First, longer maturity debt disciplines markets ex-post while avoiding government bailouts. Second, ex-ante market discipline, measured by the average quality of projects, increases. The model provides an explanation why regulators impose minimum maturity requirements for bail-in debt and a motivation to treat short-term debt preferentially during intervention.

The Evolution of Asymmetric Risk Preferences in Dynamic Competitions

This paper analyzes a dynamic competition in which two players gamble independently, and fairly to affect their wealths. At each instant in time, a prize is allocated to the player with the highest wealth. There is a unique equilibrium in which the player lagging in wealth takes maximal risks, while the leading player takes no risks at all. An evolutionary interpretation of the result is offered, which provides a foundation for reference-dependent, asymmetric risk preferences. In particular, when fitness is determined by such dynamic competitions, S-shaped Bernoulli utility functions emerge uniquely.