Labor outsourcing provides flexibility to producers but also exposes sensitive information to outsiders, which may deter outsourcing if the legal system does not provide adequate protection. I use this simple trade-off to evaluate policies that capacitate higher levels of labor outsourcing. I build an industry dynamics model where outsourcing provides flexibility to producers but might be underutilized due to a legal friction. I estimate the model using data from the U.S. states and decompose the cross-state heterogeneity in labor outsourcing into differences in firing cost, industry composition, demand volatility, and a state-level wedge. The wedge estimates correlate with trade secret protection measures across states. I find that reducing the friction for all states to match the least distorted state would increase outsourced employment by 33% and aggregate output by 0.8%. Then, using event studies around the staggered adoption of the Uniform Trade Secrets Act, I show that it led to increased outsourcing of high-skill jobs. 

Presented at UdeM, Queens U, UBC, ITAM, Bilkent U, FRBDallas, U Exeter, U Bristol, Western U, Ozyegin U, IWH, U Essex, Georgetown Qatar, Sabanci U, FRB St. Louis, SEA'21, CMSG'21, ALEA'21, SED'21, SIOE'21, EARIE'21, MMF'21, SOLE'21, NASMES'21, IIOC'21, EEA-ESEM'20, SED'20, GCER Alumni Conference'20, Midwest Macro'20, 3rd GW Student Research Conference in Economics'20, XII. Winter Workshop,  YES'18

Abstract: Recessions are characterized by slow input reallocation and increased measures of misallocation. A usual suspect is declining information quality about new investment opportunities. We study the role of information frictions by measuring how the informativeness of the stock prices changes with business cycles. We first build a stock market model in which both the information content and the noise in prices respond to changes in economic activity, affecting how well those prices reflect firm's performance. Then we incorporate this module in a dynamic model with heterogeneous firms to characterize how stock price informativeness and capital misallocation interact with one another. An increase in liquidity concerns of traders can simultaneously boost information production, decrease stock price informativeness, and increase capital misallocation in the economy.

Presented at 14th Macro Finance Society Workshop (2019-Poster Session), MFM Summer Session for Young Scholars (2018-Poster Session)

Abstract: Recent empirical work shows a strong positive correlation between job-to-job transition rates and nominal wage growth in the U.S. First, using time series regressions, structural monetary policy shocks, and survey data on search effort we provide evidence that inflationary shocks cause higher job-to-job transitions in the subsequent years. Second, to understand the aggregate implications, we build a structural model with aggregate shocks and competitive on-the-job search in which wages react sluggishly to inflation. In periods with high inflation, the decline in real wages incentivizes the employees to search on-the-job more actively, to negotiate a new contract, but also to be less selective in their search behavior. This creates a fundamental trade-off: increased search effort leads to more job-to-job transitions while being less selective reduces the expected efficiency gain in each transition. Therefore, the effect on output becomes ambiguous. Third, we calibrate the model to the U.S. economy and confirm that the output response to inflation shock is non-monotonic. Importantly, our paper highlights a novel role for inflation: the monetary authority can stimulate productivity with an inflationary shock through job-to-job transitions.

Presented at: Banxico, Macro Lunch Talk at UPenn 2018, 2019

Abstract: Existing theories of the firm define its boundaries through the optimal allocation of ownership rights of alienable capital. However, a broad set of business services today rely on inalienable, i.e. human, capital. We provide a new theory of firm boundaries based on dynamic incentives and at-will employment. In our model, in each period, a principal can either write a short-term outsourcing contract in which parties commit to ending the relationship after one period or an employment contract that potentially lasts multiple periods. In environments in which an employee's past success increases his cost of effort in future periods, the principal's lack of commitment to re-hire an employed worker undermines her ability to provide incentives in earlier periods. Hence, in equilibrium, there is too much worker turnover and too much outsourcing relative to the first-best assignment of workers to firms. We characterize when outsourcing contracts strictly outperform employment contracts, and vice-versa. Notably, our theory does not rely on capital ownership, heterogeneous adjustment costs, or pre-existing boundaries, cornerstones of existing theories of the firm.

Abstract: Negative advertising provides information about the weaknesses of a competitor's product. We study negative advertising with a focus on how its regulation impacts product positioning for profit-maximizing firms. We build a model of informative advertising competition, where product positioning is endogenous and consumers have rational expectations. We show that despite the informational benefits of negative advertising, permitting it (as the Federal Trade Commission in the United States does) may lead to reduced product differentiation and lower consumer welfare, even in markets where firms do not utilize negative advertising in equilibrium. We then extend our model to political competition, where a candidate's objective is to obtain a larger share of votes than the competitor. We show that political competition supports higher positional differentiation, along with more negative advertising than product competition, in line with the observed high use of negative advertising in political races and their rarer use in product competition.  

This paper estimates the global network structure of sovereign credit risk by applying the Diebold-Yilmaz connectedness methodology on sovereign credit default swaps (SCDSs). The level of credit risk connectedness among sovereigns, which is quite high, is comparable to the connectedness among stock markets and foreign exchange markets. In the aftermath of the recent financial crises that originated in developed countries, emerging market countries have played a crucial role in the transmission of sovereign credit risk, while developed countries and debt-ridden developing countries played marginal roles. Secondary regressions show that both trade and capital flows are important determinants of pairwise connectedness across countries. The capital flows became increasingly important after 2013, while the effect of trade flows decreased during the crisis and did not recover afterwards.

Presented at: Financial Globalization and Its Spillovers Workshop at TH Koln and Maastricht University (2017), the Third Economic Networks and Finance Conference at the London School of Economics (2015) and the Second Vienna Workshop on High Dimensional Time Series in Macroeconomics and Finance (2015)