Adverse Selection and Liquidity Distortion in Decentralized Markets

Why do some markets remain liquid even when there is a positive gain from trade? In order to understand the real determinants of market liquidity in decentralized markets, we are going to analyze this question in a competitive market setting when both search frictions and adverse selection play roles. In a dynamic environment with heterogeneous sellers and buyers, we investigate the role of market frictions and how adverse selection leads to the distortion of equilibrium market liquidity. The resulting friction therefore prohibits resources from reallocating efficiently. In the application of capital reallocation, we further show that this trading friction can generate significant economic fluctuations.Liquidity; Search frictions, Adverse selection; Uncertainty; Capital Reallocation JEL Classification Numbers: D82, G1

Decentralized and Fault-Tolerant Control of Power Systems with High Levels of Renewables

Inter-area oscillations have been identified as a major problem faced by most power systems and stability of these oscillations are of vital concern due to the potential for equipment damage and resulting restrictions on available transmission capacity. In recent years, wide-area measurement systems (WAMSs) have been deployed that allow inter-area modes to be observed and identified.Power grids consist of interconnections of many subsystems which may interact with their neighbors and include several sensors and actuator arrays. Modern grids are spatially distributed and centralized strategies are computationally expensive and might be impractical in terms of hardware limitations such as communication speed. Hence, decentralized control strategies are more desirable.Recently, the use of HVDC links, FACTS devices and renewable sources for damping of inter-area oscillations have been discussed in the literature. However, very few such systems have been deployed in practice partly due to the high level of robustness and reliability requirements for any closed loop power system controls. For instance, weather dependent sources such as distributed winds have the ability to provide services only within a narrow range and might not always be available due to weather, maintenance or communication failures.Given this background, the motivation of this work is to ensure power grid resiliency and improve overall grid reliability. The first consideration is the design of optimal decentralized controllers where decisions are based on a subset of total information. The second consideration is to design controllers that incorporate actuator limitations to guarantee the stability and performance of the system. The third consideration is to build robust controllers to ensure resiliency to different actuator failures and availabilities. The fourth consideration is to design distributed, fault-tolerant and cooperative controllers to address above issues at the same time. Finally, stability problem of these controllers with intermittent information transmission is investigated.To validate the feasibility and demonstrate the design principles, a set of comprehensive case studies are conducted based on different power system models including 39-bus New England system and modified Western Electricity Coordinating Council (WECC) system with different operating points, renewable penetration and failures

Essays on real life allocation problems

In the first chapter, we introduce a new matching model to mimic inter-college tuition exchange programs for dependents of faculty to attend other colleges tuition-free. Each participating college has to avoid being a net-exporter of students. Programs use decentralized markets making it difficult to achieve balance. We show that stable equilibria discourage net-exporting colleges from exchange. We introduce two-sided top-trading-cycles (2S-TTC) mechanism that is balanced-efficient, student-strategy-proof, and respecting priority bylaws regarding dependent eligibility. Moreover, it encourages exchange, since full participation is dominant strategy for colleges. We prove 2S-TTC is the unique mechanism fulfilling these objectives and introduce new student-strategy-proof mechanisms to achieve other objectives. In the second chapter, we consider a house allocation with existing tenants model in which each transaction is costly for the central authority, a housing office. We compare two widely studied mechanisms, deferred acceptance (DA) and top trading cycles (TTC), based on their costs for the housing offices. A mechanism in which more existing tenants are assigned to their current house is preferred for the housing offices due to the costs of moving. We show that although there is no dominance between the two mechanisms, DA has more desirable features in terms of the cost efficiency for the housing offices. Then we include the welfare of the housing office in the welfare analysis and redefine the Pareto efficiency notion. We show that every fair matching is Pareto efficient. Based on the extended Pareto efficiency definition, the DA mechanism is the unique Pareto efficient, fair, and strategy-proof mechanism. Finally, the third chapter characterizes the top trading cycles mechanism for the school choice problem. Schools may have multiple available seats to be assigned to students. For each school a strict priority ordering of students is determined by the school district. Each student has strict preference over the schools. We first define weaker forms of fairness, consistency and resource monotonicity. We show that the top trading cycles mechanism is the unique Pareto efficient and strategy-proof mechanism that satisfies the weaker forms of fairness, consistency and resource monotonicity. To our knowledge this is the first axiomatic approach to the top trading cycles mechanism in the school choice problem where schools have a capacity greater than one.Economic

Technology entrepreneurship and value creation on open innovation platforms

This dissertation studies how entrepreneurial firms create economic value from open source technology platforms, interfaces on which firms disclose knowledge and distribute innovation for free without retaining any proprietary rights. Despite their increasing importance in innovation and growing popularity among profit-seeking new ventures, open source platforms present a major challenge for value creation, as they lack price signals to guide ventures’ transactions and forfeit ventures’ control over key resources and knowledge for innovation. Those features are in contrast with the fundamental assumption about price and revenue in economics. They also run counter to the central tenet in strategy research that private knowledge and rare resources are central to competitive advantage and profiting from innovation. To address this puzzle about value creation from free technologies base on free knowledge and resources, this dissertation specifically focus on the economic implications of strategies ventures can leverage within and across open source development communities. Chapter I reviews the literature relevant to entrepreneurship in an open and inter-dependent innovation environment. Exploring research opportunities emerged from the literature review, Chapter II explores the possibility that multihoming, a critical growth strategy of ventures as open source complementors in platform competition, allows ventures to reinforce their existing user base – a prerequisite of value creation from open source. Chapter III directly addresses value creation by investigating how collaborating with external contributors, another critical open source strategy, influences venture capital investment. Both essays highlight how platform network effects unfold without price signals and proprietary rights of the technologies in shaping the outcome for ventures’ strategies. They also emphasize those strategies’ demand side implications on users, participants on another side of open source platforms. The empirical analyses of this dissertation are based on multiple open source technologies platforms, with data obtained from on GitHub, the worlds’ largest open source software storage provider, containing 5 Terabytes of information on 2.1 million ventures, 96 million technologies and over 2 billion development activities, under research designs for deriving causal references. Overall, the dissertation seeks to advance the understanding of value creation in entrepreneurship through open source platforms, an increasingly important phenomenon in contemporary economy.Managemen

College admissions with entrance exams: Centralized versus decentralized

© 2018 Elsevier Inc. We study a college admissions problem in which colleges accept students by ranking students’ efforts in entrance exams. Students’ ability levels affect the cost of their efforts. We solve and compare equilibria of “centralized college admissions” (CCA) where students apply to all colleges and “decentralized college admissions” (DCA) where students only apply to one college. We show that lower ability students prefer DCA whereas higher ability students prefer CCA. Many predictions of the theory are supported by a lab experiment designed to test the theory, yet we find a number of differences that render DCA less attractive than CCA compared to the equilibrium benchmark

Bank Lending and Relationship Capital

I develop an equilibrium theory of bank lending relationships in an economy subject to search frictions and limited enforceability. The model features a dynamic contracting problem embedded within a directed search equilibrium with aggregate and bank-specific uncertainty. The interaction between search and agency frictions generates a slow accumulation of lending relationship capital and distorts the optimal allocation of credit along both intensive and extensive margins. A crisis characterized by a sizable destruction of lending relationships therefore leads to a significant contraction in credit and a slow recovery, consistent with the Great Recession. I calibrate the model to study aggregate and cross-sectional implications and analyze policies aimed at reviving bank lending