Essays on Credit Frictions, Market Expansion,and Strategic Team Production

The first chapter, jointly authored with Nicolas Petrosky-Nadeau and Etienne Wasmer,studies the relationship between credit markets and labor markets over the business cycle.We explicitly categorize US quarters between 1953 and 2017 as being “recession”, “normal”,or “expansion” based on the deviation of unemployment from its long-run trends. We then examine how various credit-market measures correlate with unemployment in the following quarters. We find changes in the credit market have correlations with future unemployment that vary dramatically with the initial state of the economy. We then show that the same patterns of state-dependency exist in a model with search-frictional credit and labor markets.After calibrating the model to match key labor and credit-market moments, we estimate impulse response functions and find the impact of any adverse shock on unemployment to be meaningful only under certain initial conditions. We also find that while unemployment is about 1.6 times more responsive to productivity shocks than credit-market shocks, the response of the credit spread is about even between productivity and credit-market shocks.In the second chapter, I examine several instances where the removal of geographic barriers caused increased competition between formerly isolated firms, resulting in fewer firms and a more concentrated market. Notable instances of this pattern include the US commercial
banking industry, the US retail industry in response to the advent of e-commerce, exporting firms following the removal of international trade barriers, and the US brewing industry following the adoption of national television and mass advertising. I propose a theoretical model that explicitly accounts for geographic distance and the power it grants firms to act monopolistically within their local markets. As these geographic barriers are removed overtime, either gradually or suddenly, prices experience downward pressure from increased com-petition and upward pressure as firms exit and surviving firms inherit larger market shares.I also explore a range of parameter values that demonstrate nonlinear relationships betweenmarket size and market concentration. While market concentration is generally increasing in these settings, increased market expansion can also reduce firm output such that large firms acquire less market share in the long-run even though the number of active firms has decreased.The final chapter, jointly authored with Emilio Bisetti and Ariel Zetlin-Jones, re-examines the importance of separation between ownership and labor in team production models that feature free riding. In such models, conventional wisdom suggests an outsider is needed to administer incentive schemes that do not balance the budget. We analyze the ability of insiders to administer such incentive schemes in a repeated team production model with free riding when they lack commitment. Specifically, we augment a standard, repeated team production model by endowing insiders with the ability to impose group punishments which occur after team outcomes are observed but before the subsequent round of production.We extend techniques from Abreu(1986) to characterize the entire set of perfect-public equilibrium payoffs and find that insiders are capable of enforcing welfare enhancing group punishments when they are sufficiently patient.