Matching Items (2)
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- All Subjects: Financial Economics
- All Subjects: Microfinance
- Creators: Kovrijnykh, Natalia
Description
In this paper, I study many-to-one matching markets in a dynamic framework with the
following features: Matching is irreversible, participants exogenously join the market
over time, each agent is restricted by a quota, and agents are perfectly patient. A
form of strategic behavior in such markets emerges: The side with many slots can
manipulate the subsequent matching market in their favor via earlier matchings. In
such a setting, a natural question arises: Is it possible to analyze a dynamic many-to-one
matching market as if it were either a static many-to-one or a dynamic one-to-one
market? First, I provide sufficient conditions under which the answer is yes. Second,
I show that if these conditions are not met, then the early matchings are "inferior"
to the subsequent matchings. Lastly, I extend the model to allow agents on one side
to endogenously decide when to join the market. Using this extension, I provide
a rationale for the small amount of unraveling observed in the United States (US)
medical residency matching market compared to the US college-admissions system.
Micro Finance Institutions (MFIs) are designed to improve the welfare of the poor.
Group lending with joint liability is the standard contract used by these institutions.
Such a contract performs two roles: it affects the composition of the groups that form,
and determines the properties of risk-sharing among their members. Even though the
literature suggests that groups consist of members with similar characteristics, there
is evidence also of groups with heterogeneous agents. The underlying reason is that
the literature lacked the risk-sharing behavior of the agents within a group. This
paper develops a model of group lending where agents form groups, obtain capital
from the MFI, and share risks among themselves. First, I show that joint liability
introduces inefficiency for risk-averse agents. Moreover, the composition of the groups
is not always homogeneous once risk-sharing is on the table.
following features: Matching is irreversible, participants exogenously join the market
over time, each agent is restricted by a quota, and agents are perfectly patient. A
form of strategic behavior in such markets emerges: The side with many slots can
manipulate the subsequent matching market in their favor via earlier matchings. In
such a setting, a natural question arises: Is it possible to analyze a dynamic many-to-one
matching market as if it were either a static many-to-one or a dynamic one-to-one
market? First, I provide sufficient conditions under which the answer is yes. Second,
I show that if these conditions are not met, then the early matchings are "inferior"
to the subsequent matchings. Lastly, I extend the model to allow agents on one side
to endogenously decide when to join the market. Using this extension, I provide
a rationale for the small amount of unraveling observed in the United States (US)
medical residency matching market compared to the US college-admissions system.
Micro Finance Institutions (MFIs) are designed to improve the welfare of the poor.
Group lending with joint liability is the standard contract used by these institutions.
Such a contract performs two roles: it affects the composition of the groups that form,
and determines the properties of risk-sharing among their members. Even though the
literature suggests that groups consist of members with similar characteristics, there
is evidence also of groups with heterogeneous agents. The underlying reason is that
the literature lacked the risk-sharing behavior of the agents within a group. This
paper develops a model of group lending where agents form groups, obtain capital
from the MFI, and share risks among themselves. First, I show that joint liability
introduces inefficiency for risk-averse agents. Moreover, the composition of the groups
is not always homogeneous once risk-sharing is on the table.
ContributorsAltinok, Ahmet (Author) / Chade, Hector (Thesis advisor) / Manelli, Alejandro (Committee member) / Friedenberg, Amanda (Committee member) / Kovrijnykh, Natalia (Committee member) / Arizona State University (Publisher)
Created2020
Description
This dissertation consists of two essays related to dynamic debt contracting and financial economics. The first chapter studies key determinants of inclusion of a financial covenant in corporate loans from theoretical and empirical angles. Using a novel manually collected loan dataset of small to medium-sized publicly-listed U.S. firms, I find that firms that issue loans without financial covenants tend to have (i) lower accounting quality, (ii) lower assets, and (iii) are experiencing faster growth in profitability relative to firms that issue loans with financial covenants. I build a theoretical model of project financing in which there is noisy public information about the project’s profitability, and the lender can privately monitor to improve the information quality. I show that if the signal precision without monitoring is sufficiently low (high), the equilibrium contract does not include (includes) a covenant. Covenant inclusion plays a key role in providing incentives to the lender to monitor. I show that the lender monitors less often relative to the first best. Insufficient monitoring leads to “excessive risk-taking,” namely, bad quality firms continuing with the project too often. Relatedly, I also show that covenants are used less often in equilibrium relative to the first best. The second chapter examines equilibrium consequences of litigation by holdout creditors in sovereign debt renegotiation. I show that given a sufficiently high probability of winning the litigation case against the borrowing country and/or a high enough defaulted sovereign debt, the presence of the holdout creditors increases the expected debt recovery rate, which makes the default option less attractive, and decreases the country’s default probability and the interest rate on the country’s debt. The country responds by borrowing more but defaults less often along the equilibrium path as it wants to avoid default and facing holdout creditors. Having a non-zero probability of successful litigation is welfare improving for the country as it sustains higher debt and defaults less frequently.
ContributorsKim, Yong (Author) / Kovrijnykh, Natalia (Thesis advisor) / Mehra, Rajnish (Committee member) / Tserlukevich, Yuri (Committee member) / Arizona State University (Publisher)
Created2021