Summary of Research

My research is in applied theory. My objective has been to develop models of individual behavior that incorporate realistic constraints (such as transactions costs or social networks) and study their aggregate and welfare implications both theoretically and empirically. This summary groups my work into four topics. (1) Networks. I combine models, experiments and data to study social capital, social networks and their interactions with markets. (2) Consumption and household …nance. I study the implications of adjustment costs and borrowing constraints on risk preferences and consumption. (3) International trade. I explore the e¤ects of contractual and physical transaction costs on trade and productivity in international markets. (4) Auctions and markets. I study the foundations for market e¢ ciency using models of auctions with …nitely many participants, and when some bidders su¤er from behavioral biases. i. Networks Neoclassical economics often assumes that agents can write formal contracts that are costlessly enforced by the legal system. However, in many economies, low-cost contract enforcement is imperfect , and agents often rely on informal arrangements that take place in the social network.bius, Tanya Rosenblat and I build a theory of trust based on informal contract enforcement in social networks. In this model, network connections between individuals can be used as social collateral to secure informal borrowing. We de…ne network-based trust as the highest amount one agent can borrow from another agent, and express this quantity as the sum of the weakest links on all disjoint paths connecting borrower and lender, also known in mathematics as the maximum network ‡ow. We then use this reduced form in three applications related to the theory and measurement of social capital. (1) We predict that dense networks generate bonding social capital that allows transacting valuable assets, while loose networks create bridging social capital that improves access to cheap favors like information. (2) For job recommendation networks, we show that strong ties between employers and trusted recommenders reduce asymmetric information about the quality of job candidates. (3) Using data from Peru, we show empirically that network-based trust predicts informal borrowing, and we structurally estimate and test our model. A broader contribution is a framework for informal contracting in networks which we use in several other papers that I discuss below. The previous paper provides a theoretical framework for informal borrowing in networks. But how valuable are networks for loan transactions in practice? Sociologists often argue that allocations are primarily determined …