BRUNO PELLEGRINO

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.

bpellegr [at] umd.edu

+1 (312) 257-8888

RESEARCH (Working Papers)

Product Differentiation and Oligopoly: a Network Approach

(Revise & Resubmit, American Economic Review)

  • 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: 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.

Video Talk: [SFS Cavalcade North America 2021]

Graphs: [Figure 3] — Press Coverage: [Pro-Market @Stigler Center]

Presentations: NBER Industrial Organization (scheduled), Royal Economic Society (scheduled), NBER Mega-Firms Conference, Society for Economic Dynamics, NBER Summer Institute, Western Finance Association, SFS Cavalcade North America, American Economic Association, EARIE, Econometric Society European Meeting, IIOC, UChicago Networks Conference, Oxford Firm Heterogeneity & the Macroeconomy, Econometric Society World Congress, 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), Swiss Finance Institute/EPFL, Bocconi University, Finance Organizations and Markets (FOM), European Economic Association, Oligo Workshop.

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, Econometric Society European Meeting, ESCOE, UCLA-UCBerkeley Political Economy Workshop, London Business School (TADC).

Abstract: Observed patterns of international investment are difficult to reconcile with frictionless capital markets. In this paper, we provide a quantitative theory of international capital allocation: a multi-country dynamic general equilibrium model with rationally-inattentive investors, where cross-border investment is subject to both information and policy frictions. These frictions result in a persistent misallocation of capital across countries. We estimate model parameters using nationality-based, bilateral investment data, and measures of geographic, linguistic and cultural distance, which capture information frictions. Our unified theoretical-empirical framework can account for several stylized facts: the gravity structure of investment flows, home bias, persistent global imbalances and capital return differentials across countries, as well as the paucity of net flows from developed to emerging economies. Finally, we perform counterfactual exercises: we find that information and policy barriers to international investment greatly amplify the capital gap between rich and poor countries, and result in a large reduction in world output.

Presentations: UC Berkeley Economics (scheduled), NBER International Finance & Macroeconomics, UChicago International Macro-Finance Conference, Online International Finance & Macro Seminar (OIFM), American Finance Association, UT Austin McCombs, Colorado Winter Finance Summit, European Finance Association, Yale Junior Finance Conference, D.C. Junior Finance Conference, CSEF-DISES U. of Naples Federico II, US International Trade Commission, Econometric Society (ASSA), European Economic Association, Money Macro and Finance Society, FIW Conference, RCEA Money Macro & Finance, T3M.

Abstract: We study the welfare implications of the rise of common ownership and product market concentration in the United States from 1994 to 2018. We develop 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 governance assumptions the deadweight loss in 2018 ranges between 1.9% and 4.4% of total surplus. The rise of common ownership has also resulted in a significant reallocation of surplus from consumers to producers.

Presentations: Midwest Finance Association (scheduled), Swiss Finance Institute/USI, CEPR FirmOrgDyn, Cambridge Network Economics Conference, SAET.

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)] [Washington Post] [Project Syndicate] [II Sole 24 Ore] [Barron's] [Corriere della Sera] [LaRepubblica] [Frankfurter Allgemeine] [Il Foglio]

Presentations: American Economic Association, European Economic Association, UCLA Anderson-UCBerkeley Haas Political Economy Workshop.

WORK IN PROGRESS

Financial Globalization: Winners and Losers (with Damien Capelle)

Abstract: Using wedge accounting in an international investment gravity model, we quantify the effects of the last five decades of financial globalization on world output, cross-country inequality, and the cross-section of wages and capital rents. We find that uneven financial globalization has led to a worsening of the allocation of capital, resulting in a lower world output by 4%. In addition, inequality across countries has widened: output per capita has declined by 23% in the poorest economies on average. While financial globalization has increased wages and lowered capital returns in high-income countries, it has led to the opposite result in low-income countries. Despite the diversification of their portfolio towards capital-scarce high-returns economies, capital-owners in high-income economies have seen the average returns on their portfolio decline by 18% because returns on the domestic asset have declined by 29%.

Presentations: American Economic Association; IMF Annual Macro-Finance Conference.

Product Market Spillovers of Corporate Investment

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.

Presentations: Cambridge Judge (scheduled).