Working Papers

The Role of Collateralized Household Debt in Macroeconomic Stabilization (with Zvi Hercowitz) January, 2006.

Market innovations following the financial reforms of the early 1980s drastically reduced equity requirements associated with collateralized household borrowing. This paper examines the contribution of this development to the macroeconomic stabilization that occurred shortly thereafter. The model combines collateralized household debt with heterogeneity of time preference in a calibrated general equilibrium setup. We use this framework to characterize the business cycle implications of lowering required down payments and rates of amortization for durable goods purchases as in the early 1980s. The model predicts that this reduction of equity requirements can explain a large fraction of the actual volatility decline in hours worked, output, household debt, and household durable goods purchases.

Competition in Large Markets July, 2006.

This paper evaluates the simplifying assumption that producers compete in a large market without substantial strategic interactions using nonparametric regressions of producers' choices on market size. With such atomistic competition, increasing the number of consumers leaves the distributions of producers' prices and other choices unchanged. In many models featuring non-trivial strategic considerations, producers' prices fall as their numbers increase. I examine observations of restaurants' sales, seating capacities, exit decisions, and prices from 222 U.S. cities. Given factor prices and demographic variables, increasing a city's size increases restaurants' average sales and decreases their exit rate and prices. These results suggest that strategic considerations lie at the heart of restaurant pricing and turnover.

Rigid Prices: Evidence from U.S. Scanner Data (with Benjamin Eden) October, 2005.

This paper uses over two years of weekly scanner data from two small US cities to characterize time and state dependence of grocers' pricing decisions. In these data, the probability of a nominal adjustment declines with the time since the last price change. This reflects differences over time in the flexibility of prices charged by a single store for a given good. We also detect state dependence: The probability of a nominal adjustment is highest when a store's price substantially differs from the average of other stores. However, extreme prices typically reflect the selling store's recent nominal adjustments rather than changes in other stores' prices.

A Firm's First Year (with Jaap Abbring) November, 2004.

This paper determines the structural shocks that shape a firm's first year by estimating a structural model of firm growth, learning, and survival using monthly sales histories from 305 Texas bars. We find that heterogeneity in firms' pre-entry scale decisions accounts for about 40% of their sales' variance; persistent post-entry shocks account for most of the remainder. We find no evidence of entrepreneurial learning. Variation of the firms' fixed costs consistent with an annual lease cycle explains their exit rates. We use the estimated model to price a new bar's option to exit, which accounts for 124% of its value.