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

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 DSGE model with rationally-inattentive investors, where cross-border investment is subject to both information and policy frictions. The presence of these frictions results in persistent (steady-state) misallocation of capital across countries. We estimate model parameters using nationality-based, bilateral investment data, and find a major role for information barriers, which we capture using measures of geographic, linguistic and cultural distance. 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: American Finance Association 2022 (scheduled), Colorado Winter Finance Summit (scheduled), NBER International Finance & Macroeconomics, Chicago International Macro-Finance Conference, Online International Finance & Macro Seminar (OIFM), Econometric Society (ASSA), European Finance Association, European Economic Association, US International Trade Commission, Yale Junior Finance Conference, D.C. Junior Finance Conference, UT Austin McCombs, CSEF-DISES U. of Naples Federico II, Money Macro and Finance Society, FIW Conference, RCEA Money Macro & Finance, T3M, UCLA, University of Maryland Smith

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 in which granular firms compete in a network game of oligopoly. Firms are are connected through two large networks: the first reflects ownership overlap, the second product similarity. In our model, common ownership of competing firms induces unilateral incentives to soften product market competition. A key insight of our model is that the product market effects of common ownership depend crucially on the extent to which these two networks overlap. We estimate our model for the universe of public corporations in the U.S. 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 the distributional impact of common ownership have evolved over this period. Based on our model, the welfare cost of common ownership, measured as deadweight loss-to-total surplus ratio, has increased nearly tenfold (from 0.3% to over 4%) between 1994 and 2018. The rise of common ownership has also resulted in a significant reallocation of surplus from consumers to producers.

Presentations: Midwest Finance Association (scheduled), CEPR FirmOrgDyn (scheduled), Cambridge Networks Conference, SAET, UCLA, UMaryland 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 Meeting, Econometric Society European Meeting, ESCOE Economic Measurement Conference, UCLA-UCBerkeley Political Economy Workshop.

*This paper has previously been circulated with the title "What is the extent of Misallocation?"

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 (scheduled); IMF Annual Macro-Finance Conference.

Innovation Spillovers

Abstract: New inventions don't just generate rents for the inventing firm: they also generate spillovers to competitors, customers and the government (who can tax the resulting rents). The magnitude of these spillovers depends on the structure of product markets. This paper proposes a novel, demand-based approach to measuring spillovers from inventions patented by US corporations. By estimating a hedonic, time-varying demand system for the universe of public firms in the United States, I construct new dataset that provides, for (nearly) every patent issued by US public corporations between 1989 and 2019, the estimated dollar value of the spillover to every other public firm, as well as the resulting gain in consumer surplus and government tax revenues. I thus uncover a rich network of heterogeneous and economically-significant spillovers. On average, a dollar of patent private 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)] [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, UCLA (Econ Dept.)