| Summary: | Along this dissertation I propose to walk the reader through several macroeconomic
implications of information asymmetries, with a special focus on financial
issues. This exercise is mainly theoretical: I develop stylized models that aim
at capturing macroeconomic phenomena such as self-fulfilling liquidity dry-ups,
the rise and the fall of securitization markets, and the creation of systemic risk.
The dissertation consists of three chapters. The first one proposes an explanation
to self-fulfilling liquidity dry-ups. The second chapters proposes a formalization
of the concept of market discipline and an application to securitization
markets as risk-sharing mechanisms. The third one offers a complementary
analysis to the second as the rise of securitization is presented as banker optimal
response to strict capital constraints.
Two concepts that do not have unique acceptations in economics play a central
role in these models: liquidity and market discipline.
The liquidity of an asset refers to the ability for his owner to transform it into
current consumption goods. Secondary markets for long-term assets play thus
an important role with that respect. However, such markets might be illiquid due
to adverse selection.
In the first chapter, I show that: (1) when agents expect a liquidity dry-up
on such markets, they optimally choose to self-insure through the hoarding of
non-productive but liquid assets; (2) this hoarding behavior worsens adverse selection and dries up market liquidity; (3) such liquidity dry-ups are Pareto inefficient
equilibria; (4) the government can rule them out. Additionally, I show
that idiosyncratic liquidity shocks à la Diamond and Dybvig have stabilizing effects,
which is at odds with the banking literature. The main contribution of the
chapter is to show that market breakdowns due to adverse selection are highly
endogenous to past balance-sheet decisions.
I consider that agents are under market discipline when their current behavior
is influenced by future market outcomes. A key ingredient for market discipline
to be at play is that the market outcome depends on information that is observable
but not verifiable (that is, information that cannot be proved in court, and
consequently, upon which enforceable contracts cannot be based).
In the second chapter, after introducing this novel formalization of market
discipline, I ask whether securitization really contributes to better risk-sharing:
I compare it with other mechanisms that differ on the timing of risk-transfer. I
find that for securitization to be an efficient risk-sharing mechanism, it requires
market discipline to be strong and adverse selection not to be severe. This seems
to seriously restrict the set of assets that should be securitized for risk-sharing
motive.
Additionally, I show how ex-ante leverage may mitigate interim adverse selection
in securitization markets and therefore enhance ex-post risk-sharing. This
is interesting because high leverage is usually associated with “excessive” risktaking.
In the third chapter, I consider risk-neutral bankers facing strict capital constraints;
their capital is indeed required to cover the worst-case-scenario losses.
In such a set-up, I find that: 1) banker optimal autarky response is to diversify
lower-tail risk and maximize leverage; 2) securitization helps to free up capital
and to increase leverage, but distorts incentives to screen loan applicants properly; 3) market discipline mitigates this problem, but if it is overestimated by
the supervisor, it leads to excess leverage, which creates systemic risk. Finally,
I consider opaque securitization and I show that the supervisor: 4) faces uncertainty
about the trade-off between the size of the economy and the probability
and the severity of a systemic crisis; 5) can generally not set capital constraints
at the socially efficient level.
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