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New Version,
Submitted
,
2024

Theory and data indicate that the Dodd-Frank reforms (i) reduce bilateral netting of derivatives instead of increasing multilateral netting and (ii) fail to address the origination of systemic risk in the core while potentially increasing the spread of contagion to the periphery.

Journal of Economic Theory
,
211: 105673,
2023

It is shown that the process and outcome of contagion in graphons closely approximate those in sample networks, and for certain class of seeding problems, closed-form optimal strategies are presented which significantly outperform greedy or random seeding strategies.

The analysis of threshold contagion processes in large networks is challenging. While the lack of accurate network data is often a major obstacle, finding optimal interventions is computationally intractable even in well-measured large networks. To obviate these issues we consider threshold contagion over networks sampled from a graphon—a flexible stochastic network formation model—and show that in this case the contagion outcome can be predicted by only exploiting information about the graphon. To this end, we exploit a second interpretation of graphons as graph limits to formally define a threshold contagion process on a graphon for infinite populations. We then show that contagion in large but finite sampled networks is well approximated by graphon contagion. This convergence result suggests that one can design interventions for large sampled networks by first solving the equivalent problem for an infinite population interacting according to the limiting graphon. We show that, under suitable regularity assumptions, the latter is a tractable problem and we provide analytical characterizations for the extent of contagion and for optimal seeding policies in graphons with both finite and infinite agent types.

2nd Revise and Resubmit,
Journal of Economic Theory
,
2023

Effective regulation of insider trading necessitates regulatory ambiguity, as insiders can outcompete regulators by exploiting economies of scale, outsourcing obfuscation, and “gaming” strategies to a centralized group that acts as conduits between tippers and tippees.

Revise and Resubmit,
Journal of Economic Theory
,
2023

Oppressive regimes that surveil societies to thwart potential threats while avoiding public backlash employ a “divide and conquer” strategy, discriminating against one (payoff-irrelevant) group and exploiting trust in another, even amidst evolving social structures.

Governments use coercion to aggregate distributed information relevant to governmental objectives –from the prosecution of regime-stability threats to terrorism or epidemics–. A cohesive social structure facilitates this task, as reliable information will often come from friends and acquaintances. A cohesive citizenry can more easily exercise collective action to resist such coercion, however. We present an equilibrium theory where this tension mediates the joint determination of social structure and civil liberties. We show that segregation and unequal treatment sustain each other as coordination failures: citizens choose to segregate along the lines of an arbitrary trait only when the government exercises unequal treatment as a function of the trait, and the government engages in unequal treatment only when citizens choose to segregate based on the trait. We characterize when unequal treatment against a minority or a majority can be sustained, and how equilibrium social cohesiveness and civil liberties respond to the arrival of widespread surveillance technologies, shocks to collective perceptions about the likelihood of threats or the importance of privacy, or to community norms such as codes of silence.

Higher availability and efficacy of protective measures against infectious diseases, such as vaccines, increases individuals’ propensity to socialize. Consequently, the number of visits to central points of interest (e.g., schools, gyms, grocery stores) and the rate of interactions with the agents employed therein (e.g., teachers, trainers, cashiers) increase. This opens more channels for the virus to transmit through the central agent or location. This leads to a manifestation of network hazard (Erol 2019). The infection rates can increase as protective measures become more effective and more available. Testable predictions of the theory are confirmed by the foot traffic data from 2019-2022 and historical COVID-19 vaccination and community transmission rates.

Dealing with pandemics, such as the recent COVID-19 virus, has highlighted the critical role of social distancing to avoid contagion and deaths. New technologies that allow replacing in-person for at-distance activities have blurred the mapping between social and economic distancing. In this paper we model how individuals react to social distancing guidelines by changing their network of economic relations, affecting total output, wealth inequality, and long-term growth.