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. I am an affiliate member of the CESifo Research Network.

bpellegr [at] umd.edu

+1 (312) 257-8888

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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: This paper develops a theory of oligopoly and markups in general equilibrium, micro-founded by hedonic demand. I propose a model where oligopolistic firms compete in a network of product market rivalries that emerges endogenously out of the characteristics of the products and services they supply; these oligopolists co-exist with a fringe of atomistic competitors that enter and exit endogenously. The 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 decompose the level and the trend of markups into: 1) a new measure of firm productivity that accounts for product quality that is comparable across firms in the cross section; 2) a metric of network centrality, which captures the intensity of competition from substitute products, and determines firms' ability to capture surplus in the form of monopoly rents. I estimate that, in 2019, oligopoly lowered total surplus by 11.5% and depressed consumer surplus by 31%. My analysis also suggests that both numbers were significantly lower in the mid-90s (7.9% and 21.5%, respectively), and that M&A activity is increasingly skewed towards firm pairs that compete closely in the product market. These estimates should be interpreted with care due to data limitations.

Non-Technical Summary: [Pro-Market @ Chicago Booth]

Presentations: American Finance Association (scheduled), UK Competition & Markets Authority (scheduled), NBER Industrial Organization, NBER Mega-Firms Conference, NBER Summer Institute (Income Distribution and Macro), Western Finance Association, UMaryland (Economics Dept.), Society for Economic Dynamics, SFS Cavalcade North America, Texas Finance Festival, BSE Summer Forum, Hellenic Competition Commission, 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, 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

  • Econometric Society - Best Paper Award at ESEM (2022)

  • Washington Center for Equitable Growth - Grant (2021)

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: American Economic Association (scheduled), Finance, Organizations & Markets (scheduled), NBER Mega-Firms Conference, NBER Organizational Economics, NYU Stern, USC Marshall, Federal Trade Commission, 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, 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: Princeton (scheduled), Columbia (scheduled), London Business School (scheduled), UC Berkeley Economics, OSU Fisher, UT Austin McCombs, NBER International Finance & Macroeconomics, 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 (scheduled), American Economic Association, European Economic Association, IMF Annual Macro-Finance Conference.

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" (scheduled), American Economic Association, European Economic Association, UCLA Anderson-UCBerkeley Haas Political Economy Workshop.

WORK IN PROGRESS

Common Ownership: Emerging Facts and Policy Implications (with Florian Ederer and Martin Schmalz)

in preparation for American Economic Association Papers & Proceedings

Abstract: We use new and uniquely comprehensive data to describe the extent of common ownership within and across industries in the United States and to discuss the evidence to date on corporate governance mechanisms as well as likely macroeconomic consequences. Using micro-founded models of strategic competition in a general equilibrium framework we evaluate policy proposals aimed at remedying the potential competitive harms and critically discuss thus-far unforeseen consequences of their implementation. Our analysis can be adapted to inform future merger reviews, antitrust policy, and financial regulation.

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.