Barney Hartman-Glaser

We model the widespread failure of contracts to share risk using available indices. A borrower and lender can share risk by conditioning repayments on an index. The lender has private information about the ability of this index to measure the true state that the borrower would like to hedge. The lender is risk averse and thus requires a premium to insure the borrower. The borrower, however, might be paying something for nothing if the index is a poor measure of the true state. We provide sufficient conditions for this effect to cause the borrower to choose a non-indexed contract instead.

Published: BARNEY HARTMAN‐GLASER & BENJAMIN HÉBERT, 2020. "The Insurance Is the Lemon: Failing to Index Contracts," The Journal of Finance, vol 75(1), pages 463-506.

A central result in the theory of adverse selection in asset markets is that informed sellers can signal quality and obtain higher prices by delaying trade. This paper provides some of the first evidence of a signaling mechanism through trade delays using the residential mortgage market as a laboratory. We find a strong relationship between mortgage performance and time to sale for privately securitized mortgages. Additionally, deals made up of more seasoned mortgages are sold at lower yields. These effects are strongest in the ”Alt-A” segment of the market, where mortgages are often sold with incomplete hard information, and in cases where the originator and the issuer of mortgage-backed securities are not affiliated.

Published: Manuel Adelino & Kristopher Gerardi & Barney Hartman-Glaser, 2018. "Are Lemons Sold First? Dynamic Signaling in the Mortgage Market," Journal of Financial Economics, .

Although the aggregate capital share of U.S. firms has increased, the firm-level capital share of a typical U.S. firm has decreased. This divergence is due to mega-firms that now produce a larger output share without a proportionate increase in labor compensation. We develop a model in which firms insure workers against firm-specific shocks, where more productive firms allocate more rents to shareholders, while less productive firms endogenously exit. Increasing firm-level risk delays exit and increases the measure of mega-firms, which raises the aggregate capital share while lowering the average firm's capital share. An increase in the level of rents quantitatively magnifies this effect. We present evidence supporting this mechanism.

Published: BARNEY HARTMAN‐GLASER & HANNO LUSTIG & MINDY Z. XIAOLAN, 2019. "Capital Share Dynamics When Firms Insure Workers," The Journal of Finance, vol 74(4), pages 1707-1751.