I am an Assistant Professor of Finance at University of Maryland's Robert H. Smith School of Business. Welcome to my research webpage!
I do research in (International) Macroeconomics and Finance, with a secondary interest in Industrial Organization.
bpellegr [at] umd.edu
+1 (312) 257-8888
RESEARCH (Working Papers)
Abstract: Industry concentration and corporate profit rates have increased, in the United States, over the past two decades. This paper investigates the welfare implications of economic activity concentrating within a few firms that hold market power. I develop a general equilibrium model that features granular firms that compete in a network game of oligopoly, alongside a competitive fringe of atomistic firms with endogenous entry. To capture the degree of product differentiation among the oligopolists, I introduce a Generalized Hedonic-Linear (GHL) demand system. I show how to identify this demand system using a publicly-available dataset that measures product similarity among all public corporations in the US. Using my model, I estimate a large deadweight loss from oligopolistic behavior, equal to 11% of the total surplus produced by public firms. This loss would increase to 20% if all these firms were allowed to collude. The distributional effects of oligopoly are quantitatively important as well: under perfect competition, consumer surplus would double with respect to the oligopolistic equilibrium. I also estimate that the deadweight loss has increased by at least 2.5 percentage points since 1997. The share of surplus that accrues to producers as profits also has increased. Finally, I show how the dramatic rise in startups' proclivity to sell off to incumbents (rather than go public) may have contributed to these trends.
Presentations: NBER Mega-Firms Conference, Society for Economic Dynamics 2021 (scheduled), SFS Cavalcade 2021 (scheduled), Western Finance Association 2021 (scheduled), UChicago BFI Networks Conference, Oligo 2021 (scheduled), American Economic Association, NBER Summer Institute, Econometric Society World Congress [video], University of Maryland Smith, University of Cambridge, Northwestern Kellogg (Finance), Northwestern Kellogg (MEDS), University of Southern California (Economics Dept.), Texas A&M Mays, Bank of Italy, Stockholm IIES, Einaudi Institute for Economics and Finance (EIEF), EPFL-Swiss Finance Institute, Bocconi University, UCLA, Finance Organizations and Markets (FOM), European Economic Association
*This paper has previously been circulated with the title "Product Differentiation, Oligopoly and Resource Allocation"
Abstract: We quantify the impact of barriers to international investment, using a novel multi-country dynamic general equilibrium model with heterogeneous investors and imperfect capital mobility. Our model yields a gravity equation for bilateral foreign asset positions. We estimate this gravity equation using recently-developed foreign investment data that have been restated to account for offshore investment and financing vehicles. We show that a parsimonious implementation of the model with four barriers (geographic distance, cultural distance, foreign investment taxation, and political risk) accounts for a large share of the observed variation in bilateral foreign investment positions. Our model predicts a significant home bias, higher rates of return on capital in emerging markets, as well as “upstream” capital flows. In our benchmark calibration, we estimate that the capital misallocation induced by these barriers reduces World GDP by 7%, compared to a situation without barriers. We also find that barriers to global capital allocation contribute significantly to cross-country inequality: the standard deviation of log capital per employee is 80% higher than it would be in a world without barriers to international investment, while the dispersion in output per employee is 42% higher.
Presentations: Online International Finance & Macro Seminar (scheduled), Yale Junior Finance Conference 2021, UT Austin McCombs, ASSA 2021 (Video stream by Virtual International Trade & Macro Seminar), CSEF-DISES U. of Naples Federico II, FIW Conference 2021, UCLA, University of Maryland Smith
Abstract: An important strand of research in macroeconomics and finance investigates which factors impede enterprise investment, and what is their aggregate cost. In this paper, we make two contributions to this literature. The first contribution is methodological: we introduce a novel framework to calibrate macroeconomic models with firm-level distortions using enterprise survey micro-data. The core of our innovation is to explicitly model the firms' decisions to report the distortions they face in the survey. Our second contribution is to apply our method to estimate the GDP loss induced by distortionary red tape, across eighty-five countries. Our estimates are based on a dynamic general equilibrium model with heterogenous firms whose capital investment decisions are distorted by red tape. We find that the aggregate cost of red tape varies widely across the countries in our dataset, with an average of 1.8 to 2.1% of GDP and a total of 1.6 trillion dollars. Our framework opens up a new range of applications for enterprise surveys in macro-financial modeling and policy analysis.
Presentations: UChicago Booth, London Business School (TADC), UCLA, Econometric Society Asia Meetings, Econometric Society European Meetings, ESCOE Economic Measurement Conference, UCLA-UCBerkeley Political Economy Workshop
*This paper has previously been circulated with the title "What is the extent of Misallocation?"
Abstract: Italy’s aggregate productivity abruptly stopped growing in the mid-1990s. This stop represents a puzzle, as it occurred at a time of stable macroeconomic conditions. In this paper, we investigate the possible causes of this “disease” by using sector and firm-level data. We find that Italy’s productivity disease was most likely caused by the inability of Italian firms to take full advantage of the ICT revolution. While many institutional features can account for this failure, a prominent one is the lack of meritocracy in the selection and rewarding of managers. Unfortunately, we also find that the prevalence of loyalty-based management in Italy is not simply the result of a failure to adjust, but an optimal response to the Italian institutional environment. Italy’s case suggests that familism and cronyism can be serious impediments to economic development even for a highly industrialized nation.
Non-technical summaries: [VoxEU] [Pro-Market] - Wikipedia Entry: [Economic history of Italy] Press Coverage: [Bloomberg] [Washington Post] [Project Syndicate] [II Sole 24 Ore] [Barron's] [Corriere della Sera] [LaRepubblica] [Frankfurter Allgemeine]
Presentations: American Economic Association, European Economic Association, UCLA Anderson-UCBerkeley Haas Political Economy Workshop, UCLA (Econ Dept.)
WORK IN PROGRESS
The Welfare Cost of Common Ownership
Florian Ederer and Bruno Pellegrino
Abstract: We study the welfare implications of the rise of common ownership and product market concentration in the United States from 1999 to 2017. We develop a general equilibrium model of oligopoly in which firms are connected through a large network that reflects ownership overlap as well as product similarity. In our model, common ownership of competing firms induces unilateral incentives to soften product market competition. We estimate our model for the universe of U.S.~public corporations using a combination of firm financials, investor holdings and text-based product similarity data. We perform counterfactual calculations that allow us to evaluate how the efficiency and distributional impact of common ownership have evolved over this period. The rise of common ownership has led to a considerable deadweight loss that increases from 0.7% in 1999 to 3.5% of total surplus in 2017, as well as to an increasingly smaller share of total surplus accruing to consumers.
Presentations: SAET 2021 (scheduled), UCLA, UMaryland Smith.