I am an Assistant Professor of Finance at University of Maryland's Smith School of Business. Welcome to my webpage.
I do research in (International) Finance and Macroeconomics, with secondary interests in Industrial Organization and Networks Theory. I am an affiliate member of the CESifo Research Network.
bpellegr [at] umd.edu
+1 (312) 257-8888
RESEARCH (Working Papers)
Product Differentiation and Oligopoly: a Network Approach
Revise & Resubmit, American Economic Review
Portugal Competition Authority (AdC) - Best Paper on Competition Policy (2022)
Western Finance Association (WFA) - CRA Award for Best Paper on Corporate Finance (2021)
European Economic Association (EEA) - Best Job Market Paper Award (2019)
UCLA - Xavier Drèze Prize, for Outstanding Research Paper (2020)
Unicredit Foundation Job Market Bootcamp - Best Presentation Award (2019)
Abstract: This paper develops a theory of oligopoly and markups in general equilibrium. Firms compete in a network of product market rivalries that emerges endogenously out of the characteristics of the products and services they supply. My model embeds a novel, highly tractable and scalable demand system (GHL) that can be estimated for the universe of public corporations in the USA, using publicly-available data. Using the model, I compute firm-level markups and decompose them into: 1) a new measure of firm productivity that accounts for product quality; 2) a metric of network centrality, which captures the extent of competition from substitute products. I estimate that, in 2019, public corporations produced consumer surplus in excess of 10 US$ trillions (against $3 trillions of profits). Oligopoly lowers total surplus by 11.5% and depresses consumer surplus by 31%. My analysis also suggests that both numbers were significantly lower in the mid-90s (7.9% and 21.5%, respectively). These results should be interpreted with care due to data limitations.
Non-Technical Summary: [Pro-Market @ Chicago Booth]
Presentations: UPenn Wharton (scheduled), NBER Economic Fluctuations and Growth, NBER Industrial Organization, NBER Mega-Firms Conference, NBER Summer Institute (Income Distribution and Macro), Columbia (Economics/CBS), Northwestern Kellogg (Finance), Northwestern Kellogg (MEDS), UMaryland (Economics Dept.), University of Maryland Smith, University of Cambridge, University of Southern California (Economics Dept.), UMinnesota Carlson, Texas A&M Mays, Bank of Italy, Stockholm IIES, Einaudi Institute for Economics and Finance (EIEF), Swiss Finance Institute/EPFL, Bocconi University, American Finance Association, Western Finance Association, Society for Economic Dynamics, SFS Cavalcade North America, Texas Finance Festival, BSE Summer Forum, UK Competition & Markets Authority, Hellenic Competition Commission, UChicago Networks Conference, Oxford Firm Heterogeneity & the Macroeconomy, Finance Organizations and Markets (FOM), EARIE, Econometric Society European Meeting, IIOC, American Economic Association, Royal Economic Society, Econometric Society World Congress, European Economic Association, Oligo Workshop.
A Tale of Two Networks: Common Ownership and Product Market Rivalry (with Florian Ederer)
Revise & Resubmit, Review of Economic Studies
Abstract: We study the welfare implications of the rise of common ownership in the United States from 1994 to 2018. We build a general equilibrium model with a hedonic demand system in which firms compete in a network game of oligopoly. Firms are connected through two large networks: the first reflects ownership overlap, the second product market rivalry. In our model, common ownership of competing firms induces unilateral incentives to soften competition. The magnitude of the common ownership effect depends on how much the two networks overlap. 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 to evaluate how the efficiency and the distributional impact of common ownership have evolved over time. According to our baseline estimates the welfare cost of common ownership, measured as the ratio of deadweight loss to total surplus, has increased nearly tenfold (from 0.3% to over 4%) between 1994 and 2018. Under alternative assumptions about governance, the deadweight loss ranges between 1.9% and 4.4% of total surplus in 2018. The rise of common ownership has also resulted in a significant reallocation of surplus from consumers to producers.
Non-Technical Summary: [Pro-Market @Chicago Booth] [Harvard Law School Corporate Governance Forum]
Presentations: NBER Mega-Firms Conference, NBER Organizational Economics, NYU Stern, USC Marshall, Federal Trade Commission, Berkeley/Columbia/Duke/MIT/Nortwhestern IO Theory Conference, UTDT Annual Conference, Finance, Organizations & Markets, American Economic Association, American Finance Association, Equitable Growth Conference, Swiss Finance Institute/USI, Cambridge Judge, Red Rock Finance Conference, Econometric Society European Meeting, BSE Summer Forum, Society for Economic Dynamics, GMU Center for Micro-Economic Policy, European Finance Association, North American Econometric Society Summer Meeting, Midwest Finance Association, CEPR FirmOrgDyn, Cambridge Network Economics Conference, ALEA, SAET.
Quantifying The Impact of Red Tape on Investment: a Survey Data Approach (with Geoff Zheng)
Revise & Resubmit, Journal of Financial Economics
Abstract: An important strand of research in macro-finance investigates which factors impede enterprise investment, and quantifies 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 across eighty-five countries to characterize the distribution of these distortions and estimate the GDP loss induced by distortionary red tape. 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, Econometric Society Asia Meeting, American Economic Association, Econometric Society European Meeting, ESCOE, UCLA-UCBerkeley Political Economy Workshop, London Business School (TADC).
The Great Startup Sellout and the Rise of Oligopoly (with Florian Ederer)
American Economic Association: Papers & Proceedings (forthcoming)
Abstract: We document a secular shift from IPOs to acquisitions by venture capital-backed startups and show that this trend is accompanied by an increase in the opportunity cost of going public. Dominant companies that are disproportionately active in the corporate control market for startups have become more insulated from the product market competition over the same period. These facts are consistent with the hypothesis that startup acquisitions have contributed to rising oligopoly power.
Mergers and Acquisitions under Common Ownership (with Miguel Antón, Mireia Giné, and Florian Ederer)
American Economic Association: Papers & Proceedings (forthcoming)
Abstract: We provide new facts about the cross-section and evolution of mergers and acquisitions for US public firms. Using a general equilibrium model with a hedonic demand system and data on institutional ownership, we document that mergers are increasingly concentrated among firm pairs with a high degree of product market interaction and a moderate-to-high degree of common ownership. We estimate how much mergers have raised aggregate corporate profits and reduced consumer surplus and quantify how the anti-competitive effects of mergers are affected by common ownership and shareholder value maximization motives.
Abstract: Observed international portfolios and heterogeneity in the returns to capital across countries are hard to reconcile with frictionless capital markets. In this paper, we propose a new multi-country dynamic general equilibrium model with rationally-inattentive investors that incorporates country risk premia and policy and information frictions to cross-border investment. Our model yields a logit demand system for international assets, closed-form country portfolios, and a structural gravity equation for bilateral investment positions. We take the model to the data using a parsimonious set of frictions: capital income taxes, political risk, and measures of geographic, linguistic, and cultural distance between countries. We show that our framework replicates well international portfolios, the cross-section of home bias and returns to capital, and other salient features of international capital markets. Finally, we perform counterfactual exercises showing that barriers to international investment reduce world output by at least 6% and explain nearly half of the cross-country inequality in capital per employee.
Presentations: Columbia GSB Finance (scheduled), NBER International Finance & Macroeconomics, Princeton University, UC Berkeley Economics, London Business School, USC Marshall, OSU Fisher, UT Austin McCombs, U.Washington Foster, UChicago International Macro-Finance Conference, Online International Finance & Macro Seminar (OIFM), CESifo Macro Money and Finance, American Finance Association, Society for Economic Dynamics, Colorado Winter Finance Summit, European Finance Association, HEC-CEPR Macro-Finance Conference, Yale Junior Finance Conference, D.C. Junior Finance Conference, WEFIDEV, CSEF-DISES U. of Naples Federico II, US International Trade Commission, Econometric Society (ASSA), European Economic Association, Money Macro and Finance Society, FIW Conference, IBEFA Young Economist Seminar Series, RCEA Money Macro & Finance, T3M.
Abstract: We investigate the impact of the last five decades of financial globalization (1970-2019) on world GDP and income distribution using a dynamic, multi-country investment gravity model. Leveraging national accounts data and external assets and liabilities positions since 1970, we first develop a wedge accounting method to construct revealed measures of inward and outward capital account openness at the country level. We then compare the actual path of the world economy since 1970 to a counterfactual path in which the wedges are fixed at their pre-globalization levels. We find that financial globalization has led to a worsening of international capital allocation – i.e. world output is 2% lower as a result of the increased financial globalization. Income inequality across countries has also increased as a result of deeper financial integration: the dispersion of output per employee has increased by 8%. We also find that financial globalization has lowered wages and increased the returns to capital in low-income countries. These results are driven by the fact that high-income countries have increased their inward openness faster than low-income ones which has led capital to flow from capital-scarce to capital-rich countries. These findings stand in sharp contrast with the predictions of standard models that lack country-level details and in which capital is freely mobile.
Presentations: Washington Area International Finance Symposium, American Economic Association, European Economic Association, IMF Annual Macro-Finance Conference.
Abstract: In the seminal rational inattention model of Matêjka and McKay (2015), logit demand arises from the discrete choice of agents who are uncertain about choice payoffs and have access to a flexible, costly information acquisition technology (RI-logit). A notable limitation of this powerful framework is the lack of known general closed-form solutions that allow the decision maker's prior information to be asymmetric across choices. In this paper, I solve the RI-logit model analytically for a large family of priors known as multivariate Tempered Stable (TS) distributions. In my analytical formulation, decision makers can be biased, display aversion to prior uncertainty, and thus tend to select choices that are familiar (i.e. for which they hold a less disperse prior). My result extends the applicability of the RI-logit model to a new range of settings where prior information matters. I provide one such application, by showing how it can be used to model the behavior of risk-averse investors who select risky projects in an environment characterized by epistemic uncertainty (risk-adjusted expected returns are unknown, but can be learnt at a cost).
WORK IN PROGRESS
Product Market Spillovers of Corporate Investment (with Yiman Ren)
Abstract: Investment projects undertaken by corporations generate large externalities for peers and consumers that propagate through product markets. This paper measures the product market spillovers of corporate investment using a novel approach. I estimate a hedonic, time-varying demand system for the universe of public corporations in the United States: this in turn allows to construct a "spillover matrix". Given a dollar of private rents earned by a firm, the spillover matrix returns the corresponding dollar externality to every other firm, as well the consumer. I apply the methodology to Capex and patent rents of US public corporations between 1989 and 2019, and uncover a rich network of economically-significant spillovers. On average, a dollar worth of (private) investment rents translates into 60 cents of consumer surplus, 20 cents of negative spillovers to competitors, 5 cents of positive spillovers to producers of strategic complements, and 10 cents of government tax revenues.
PERMANENT WORKING PAPERS
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 (1)] [Bloomberg (2)] [Bloomberg (3)] [Washington Post] [Project Syndicate] [II Sole 24 Ore] [Barron's] [Corriere della Sera] [LaRepubblica] [Frankfurter Allgemeine]
Presentations: Cornell U. "100 years of Development", American Economic Association, European Economic Association, UCLA Anderson-UCBerkeley Haas Political Economy Workshop.