Center for Global Economy and Business | [no-title]

The Center for Global Economy and Business offers a small number of limited research grants to Stern faculty. The Center completed its fourth grant cycle in the spring of 2013. All full-time faculty were invited to apply for grants. In April, eight research grants were awarded to nine Stern faculty members.

The following Stern faculty received Spring 2013 Center research grants (amount in parentheses):

• Viral Acharya, Finance ($7,000)
• Gian Luca Clementi, Economics ($10,000)
• Sinziana Dorobantu, Management ($2,900)
• Xavier Gabaix, Finance ($6,000)
• Matteo Maggiori and Johannes Stroebel, Finance ($15,000)
• Gabriel Natividad, Management ($6,700)
• Marti Subrahmanyam, Finance ($8,200)
• Stijn van Nieuwerburgh, Finance ($7,500)

• Gian Luca Clementi
  • Academic Conference in Honor of Thomas Cooley
  Agenda
  
  Photos:

• Xavier Gabaix
  • A Sparsity-Based Model of Bounded Rationality, Applied to Basic Consumer and Equilibrium Theory
  Abstract:
  This paper defines and analyzes a "sparse max" operator, which generalizes the traditional max operator used everywhere in economics. The agent builds (as economists do) a simplified model of the world which is sparse, considering only the variables of first-order importance. His stylized model and his resulting choices both derive from constrained optimization. Still, the sparse max remains tractable to compute. Moreover, the induced outcomes reflect basic psychological forces governing limited attention...

• Matteo Maggiori and Johannes Stroebel
  • Very Long-Run Discount Rates
  Abstract:
  We provide the first direct estimates of how agents trade off immediate costs and uncertain future benefits that occur in the very long run, 100 or more years away. We find that very long-run discount rates are low, much lower than those routinely assumed by economic theory. We estimate these discount rates by exploiting a unique feature of residential housing markets in England, Wales and Singapore, where residential property ownership takes the form of either leaseholds or freeholds. Leaseholds are temporary, tradeable ownership contracts with maturities between 50 and 999 years, while freeholds are perpetual ownership contracts. The difference between leasehold and freehold prices represents the present value of perpetual rental income starting at leasehold expiry. We estimate these discounts for varying leasehold maturities via hedonic regressions using proprietary datasets of the universe of transactions in each country. Agents discount very long-run cash flows at low rates, assigning high values to cash flows hundreds of years in the future. For example, 100-year leaseholds are valued up to 15% less than otherwise identical freeholds. This suggests that both long-term risk-free discount rates and long-term risk premia are low. Our results provide a new testing ground for asset-pricing theories, and have direct implications for climate-change policy and long-run fiscal policy.

• Gabriel Natividad
  • Quotas, Productivity and Prices: The Case of Anchovy Fishing
  Abstract:
  I exploit a 2009 reform that introduced individual fishing quotas (catch shares) for Peruvian anchovy - the largest fishery in the world - to assess the causal impact of production quotas on within-firm productivity and market prices. Unique features of the data allow me to create two alternative counterfactuals: (i) anchovy fishing operations in a region of the country that was mandated to implement quotas with a delay, and (ii) variation in quota allocations across ships. I find that quotas do not increase within-asset or within-firm productivity in quantities. Instead, a 200% increase in anchovy prices benefits extraction firms through higher revenues, consistent with two mechanisms enacted by individual fishing quotas: more orderly industry operations reducing excess supply and an increase in bargaining power of extraction firms with respect to fish-processing. Several market characteristics across geographies differentially affect market prices after the quota regime. Supplementary evidence on fewer operational infractions, higher product quality, and a lower banking delinquency observed during the quota regime suggest the existence of efficiency gains rather than purely rent transfers.

• Marti Subrahmanyam
  • Sovereign Credit Risk, Liquidity and ECB Intervention: Deus ex Machina?
  Abstract:
  The subject of this paper is the interaction between credit risk and liquidity, in the context of the intervention by the European Central Bank (ECB), during the Euro-zone crisis. The laboratory for our investigation is the Italian sovereign bond market, the largest in the Euro-zone. We use a unique data set obtained from the Mercato dei Titoli di Stato (MTS), which provides tick-by-tick trade and quote data from individual broker-dealers. Our database covers the sovereign bonds of most European-zone countries, for the period June 1, 2011 to December 21, 2012, which includes much of the Euro-zone crisis period...