This dissertation focuses on the intersection of municipal finance and household finance. An average resident in the United States lives within the intersection of more than five sub- national government entities, each of which typically has autonomous taxing and budgetary authority. This work explores how fiscal choices made by these local governments affect the financial well-being of constituent households. The first half analyzes issues of equity in taxation and service provision, particularly with respect to local property taxes. The second half asks whether municipal capital structure choices, specifically relating to a particular form of public debt incurred by retirement systems, have a direct impact on household wealth.

The first chapter of my dissertation is coauthored with Carlos Avenancio-Leon. We document large, widespread racial and ethnic inequality in local property taxes. Using panel data covering 118 million homes in the United States, merged with geolocation detail for 75,000 taxing entities, we show a nationwide “assessment gap” which leads local governments to place a disproportionate fiscal burden on racial and ethnic minorities. We show that holding jurisdictions and property tax rates fixed, black and Hispanic residents nonetheless face a 10–13% higher tax burden for the same bundle of public services. For the median minority homeowner, this represents an additional cost of $300–$400 each year. At the 90th percentile of the national distribution, the excess tax burden is $800 per year. The assessment gap arises through two channels. First, property assessments are less sensitive to neighborhood attributes than market prices are. This generates racially correlated spatial variation in tax burden within jurisdiction. Second, appeals behavior and appeals outcomes differ by race. This results in higher assessment growth rates for minority residents. We propose an alternate approach for constructing assessments based on small-geography home price indexes, and show that this would reduce inequality by at least 55–70%. This project provides insight into how institutional discrimination can arise and persist. In this setting, at the intersection of housing markets and government policy, overt racial discrimination has been illegal since the Fair Housing Act of the 1960s. We show that outcomes which are demonstrably not race-neutral can still arise in a setting where policies are explicitly constrained to be race-blind.

The second chapter considers real economic effects of public pension underfunding. Most local governments in the United States sponsor a defined benefit pension plan for public em- ployees. Unfunded public pension liabilities represent a shortfall between contractually pro- tected commitments to future retirees and the assets held in trust to make these payments. As such, they are a particular form of public debt, ultimately backstopped by the taxpayer. State and local governments are subject to balanced-budget requirements, and therefore in- creases in unfunded pension liabilities imply, in expectation, the need to generate additional revenue or to reduce services at some future point. I test whether the increased expected costs represented by a shock to unfunded pension liabilities are capitalized into home prices. Using novel, hand-collected data on assets, liabilities, and fund flows for 200 of the largest county and municipal pension funds in the United States, I estimate whether increases in per-capita unfunded liabilities lower future house price growth. My measure of shifts in unfunded liabilities comes from large investment losses during the Great Recession. To address concerns that investment returns may be correlated with regional economic variables, I construct an instrument for fund investment returns from unexpected returns to broad asset classes. The identifying assumption is that the residual return for any broad asset class (extracted from a standard asset pricing model) is orthogonal to regional economic drivers. Using county-level measures of home price growth, I find little evidence of a strong link between pension obligations and home prices. I show that controlling for endogenous expenditure levels changes the sign of the estimated relationship, which is consistent with budgetary constraints implying a trade-off between spending on goods or services and pay- ments to retirement systems. Using microdata on individual home transactions, I find a clear negative link between pension liabilities and home price growth, along with strong evidence that these effects are larger for more valuable properties. This suggests wealth-heterogeneity in how local residents weigh the benefits of public expenditures against the costs of pub- lic debt, and also shows that municipal financial structure is directly relevant to household financial well-being.

This dissertation consists of two chapters that study how financial intermediaries pass through monetary policy and other macroeconomic shocks to households and small businesses in the real economy. In addition to documenting and quantifying the extent to which these economic shocks are transmitted by financial intermediaries, both essays examine how the transmission is done so heterogeneously, affecting different segments of the United States population differently.The first chapter of my dissertation is coauthored with Ulysses Velasquez. In this paper, we show evidence of monetary policy passthrough to rental tenants through the refinancing channel of monetary policy transmission. Although the refinancing channel has historically focused on homeowners and their residential mortgages, we examine whether commercial mortgage refinances by property owners have any effect on tenants in the form of rent prices. By employing a difference-in-differences framework and exploiting contractual restrictions on debt prepayment as an instrument, we find that rent prices fall by around 3% after a building refinances over the post-crisis period, a period over which interest rates fell to the zero lower bound. Moreover, we find greater effects on rent prices in buildings whose property owners experience a greater interest rate change after refinancing; a refinancing-induced 1 pp reduction in the mortgage rate is associated with around a 2% decline in rent prices, consistent with property owners passing through changes in interest expenses to rental tenants in the form of rent prices. As commercial property owners often have less control over when to refinance relative to homeowners, due to differences in contract terms, higher rates are more likely to be passed through to renters as higher housing costs than to homeowners during tightening periods. As households with certain demographics—racial minorities, young people, lower income—are more likely to be renters, such dynamics raise questions about how monetary policy may affect inequality. The second chapter of my dissertation is also coauthored with Ulysses Velasquez. Using the COVID-19 pandemic as the crisis setting, we investigate whether downturns in small business credit supply differ by the type of financial intermediary and the resulting implications on aggregate credit supply for areas with varying levels of nonbank reliance. We find that, after controlling for local demand shocks, fintech lenders reduce their supply of small business credit significantly, relative to both banks and nonfintech nonbanks, which is consistent with fintechs being more funding constrained during economic crises. Moreover, this reduction by fintechs is more severe in areas with high fintech entry. Finally, this decrease is not completely offset by corresponding increases in credit supply by either banks or nonfintech nonbanks, and thus, total credit supply falls in areas with high fintech entry, relative to other areas. As areas with lower incomes and higher minority shares have seen more pronounced increases in fintech presence over time, our results suggest that it is exactly these areas that experience more severe credit crunches during downturns.

One of the ultimate goals of financial economics is to understand the mechanisms that drive asset prices, both on the macroeconomic level, and on the more granular level that involves interactions between groups of investors. In my dissertation, I study the settings in which monetary policy announcements act as a source of exogenous shocks. The heterogeneous cross-sectional response of asset prices to such shocks could be used to understand the channels through which the policy affects the market, and also to study the effects of market frictions on prices.

In the first chapter, I focus on the movements of the stock prices in anticipation of monetary policy announcements. Lucca and Moench (2015) document a significant upward drift in the stock market in the 24 hours preceding meetings of the Federal Open Market Committee (FOMC). This drift is not conditional on realized monetary policy shocks. My first chapter offers an explanation for this finding that is based on disagreement and short-selling constraints. When investors hold heterogeneous beliefs about the content of the upcoming monetary policy announcement and for some market participants it is costly or impossible to short-sell, speculative demand from optimistic investors can drive up prices before the announcement. This can be especially the case for stocks that are more sensitive to the monetary policy shocks, more expensive to short-sell, and during periods of high disagreement about the FOMC decisions. I confirm this intuition in a series of empirical tests using the cross-section of U.S. equities.

In the second chapter, my coauthor Christian Jauregui and I seek to understand what could monetary policy shocks tell us about optimal bank capital requirements. We find news following U.S. FOMC announcements can be viewed as quasi-natural "stress-tests" impacting U.S. banks depending on their equity capital ratios. The heterogeneous response of banks' equity returns and bond yields to surprises in interest rates reveal how financial markets favorably value excess equity capital. We show the equity return of a bank in the 75th percentile of total equity capital ratio is roughly 1/6 less sensitive to monetary policy shocks than a bank in the 25th percentile. Similarly, corporate bond yields of banks with larger equity capital ratios are better insulated against unexpected changes in the "slope", or rate of change, of monetary policy. We conclude that higher capital requirements are viewed positively by market participants.

In this dissertation I examine the topic of the economics of innovation, focusing on the impact of a firm's innovative activity on its financial decisions and performance outcomes and on other market participants including its competitors, suppliers and customers.

In the first chapter, "The Dark Side of Patents: Effects of Strategic Patenting of Firms and Their Peers", I provides evidence that firms can benefit from patents of low productive value by focusing on the main purpose of patents: capturing market share and defending the monopolistic profits of the firm by deterring entry in the same product market. I introduce the new way of defining such "strategic" patents, of high private value to the firm but low technological contribution, by combining data on stock market-based measure of economic value of patents and a citation-based measure of patent technological knowledge spillover. Using data on patent applications, I find that strategic patenting by firms indeed leads to an increase in market concentration. Additionally, strategic patents have a smaller but still positive effect on the total factor productivity of firms, while having a significant positive effect on profit growth. For the closest competitors, I observe a reduction in total factor productivity and innovative output as well in both profit and sales growth following strategic patenting, signaling an absence of the positive technological spillover to the other firms operating within the same product market that would be characteristic for technological patents. Finally, I find that strategic patents force competitors change their innovative strategy to be able to continue to compete in the product market by shifting from exploration to exploitation of firm's existing patent technological knowledge and redirecting it into the new market area.

While the first chapter focuses on the impact that a firm's patent application has on the competitive environment, the second chapter, "Patent-Induced Shock Propagation Through the Supply Chain", examines the spillover effect of a firm's innovative activity through its production network. This paper sheds light on how innovation by the focal firm affects the firms it is related to via the firm's customers, and what it in turn tells us about the type and purpose of this innovative activity, its effectiveness, and the overall market structure. By identifying firm idiosyncratic shocks with a firm's patent application, I find that affected suppliers impose positive output and profitability spillovers on their consumers, which in turn translates into significant revenue increase of other firm's customers' suppliers. The observed effects are especially pronounced for patents exhibiting high economic value.

In the third chapter, "R

Frictions affecting information demand play an essential role in equilibrium outcomes of financial markets, and the behavior of investors, managers, and regulators. Demand-side information frictions can be the result of costly information acquisition or psychological factors, and can interact with various behavioral biases resulting in outcomes that would be puzzling in traditional, entirely rational models.

The first chapter models the learning and trading decision of investors in an economy with regular public announcements and costly information. Scheduled public announcements affect the information acquisition decision of traders, who in equilibrium focus their learning on stocks with upcoming announcements. When learning is endogenous, public announcements have a significant effect on information acquisition, price movements, and price informativeness. Using quarterly earnings announcements as regular and major information events, I document a number of patterns consistent with rational allocation of limited learning capacity. In the time-series, I show that costly information acquisition results in lower learning and price movements before announcements on busier weeks. In the cross-section of stocks, I find that learning and price movements are lower when other announcing firms are more valuable to learn about. The results suggest that learning plays a significant role in pre-announcement market movements, previously mainly attributed to leakage of insider information.

In the second chapter, I propose a new approach to model the role of regret and rejoice in dynamic stopping problems; where past outcomes the agent chose not to reach act as reference points. An agent with regret induced reference points exhibits history dependent behavior, and if the stopping decision affects the set of available information, a regret agent is more likely to continue (stop) than a fully rational decision maker when regret level is sufficiently high (low). I show that this approach to regret and rejoice can provide a unified explanation for various previously analyzed phenomena in investor and CEO behavior, such as the disposition effect, the sunk cost fallacy, and the escalation of commitment. In an equilibrium asset pricing framework, regret generates asymmetric price reaction to news, where good information is reflected in prices to a lower extent than bad news.

Factory-built housing is the largest source of unsubsidized affordable housing in the United States, but the production of homes built in factories has fallen from more than fifty percent of single-family housing starts in the mid-1970s to under ten percent today. This is surprising, given the myriad advantages of factory production -- the economies of scale, increased production capacity, more consistent quality control, and more efficient use of resources -- and given that the US is experiencing what government officials refer to as a "housing affordability crisis" (Maxine Waters 2023). Affordable housing is where factory-built housing has the comparative advantage. Larger, higher-end homes offer site-built developers higher profit margins and the ability to spread fixed costs, but factories can profitably build small. The average factory-built home is around half the size of the average site-built home, and approximately half the price per square foot. The disappearance of homes built in factories hence has a disproportionate effect on low-income homeowners and renters, and an impact on long-term economic growth and inequality.

This dissertation explores the economic and social phenomena that might explain the decades-long stagnation of factory-built housing at ten percent of housing starts, many of which involve finance. Housing and finance are inextricably linked. For all but the wealthiest, buying a home requires financing, and a home is usually the most expensive thing a household owns. Housing is especially important for households in the bottom half of the wealth distribution -- those households most likely to be considering factory-built homes. Real estate constitutes more than half of their aggregate portfolio holdings.

In Chapter 1, I place the starter home, and then the manufactured home in particular, in historical context. I discuss the various rounds of federal involvement in housing finance, and the subsequent dominance of a loan product that is distinctly American: the 30-year, fixed rate mortgage. I survey the relevant research on housing affordability and the construction shortage, and update previous studies to show the growing deficit in entry-level housing supply. I detail the rise and fall of factory-built housing in the US, and the disproportionate effect on renters and low-income homeowners. I review the grocery list of common explanations for the disappearance of manufactured homes; I use new data to refute some arguments, and propose others. I show that Home Mortgage Disclosure Act (HMDA) data are not representative of the universe of manufactured home loans -- that the actual number of manufactured home loans in a given year and state can be over 50 percent greater than the number of reported HMDA loans, with primarily chattel loans going unreported.

In Chapter 2, I focus on inventory financing, and the vertical relationships between manufacturers, lenders, and retailers. Using publicly claimed security interests and the movement reported on oversize trip permits, I follow each manufactured home in Texas from factory to dealership to buyer, as it transforms from finished goods to wholesale collateral to consumer collateral, to show that the restriction in factory-built housing supply is consistent with market foreclosure. Upstream manufacturers extend "floor plan" financing to downstream retailers buying homes for their lots, and restrict output in the downstream market. Floor plan financing acts as the vertical restraint a manufacturer needs, during two decades of a growing housing shortage, to distort competition closer to the inefficient monopoly outcome.

In Chapter 3, I detail the manufactured housing data gathered and merged for this dissertation, and place it within the relevant regulation and wider context. I discuss the potential problems with each data source, and my solutions.

The landscape of the modern financial market is rapidly changing due to innovations in trading methods and information technologies. Do innovations in financial markets improve market quality? How do traders change their trading behavior and information acquisition? How should exchange platforms and policymakers react to financial innovations? To answer these questions, I first analyze strategic information acquisition by traders and the impact of imposing market structures with different informational environments. Chapter 1 considers the quality aspect of information (i.e., the precision of private information), and Chapter 2 considers the speed aspect of information (i.e., how quickly a trader can process information and act on it). Finally, Chapter 3 analyzes one of the latest innovations in financial markets: the blockchain technology and decentralization.

In Chapter 1, I extend the canonical model of Kyle (1985) and accommodate strategic information acquisition by an informed trader and a fair disclosure regulation. A fair disclosure policy tries to mitigate information asymmetry between informed and uninformed traders by disseminating material information to all market participants. The literature has suggested that such a policy should discourage information acquisition by a potential informed trader, as it diminishes the value of privately possessing information. However, my model shows that a trader may exhibit the opposite reaction. In particular, if the disclosure policy provides a more precise public signal about asset fundamentals, it can promote information acquisition by a potential informed trader. This effect is referred to as the crowding-in effect. The crowding-in effect competes against the intended effect of fair disclosure, leading to an ambiguous reaction of private information production by an informed trader.

Chapter 2 deals with financial innovations in the speed of trading and information processing. It analyzes high-frequency traders (HFTs) and intentional delays imposed by exchange platforms. HFTs are ultra-fast traders who exploit sophisticated information and communication technologies in order to acquire information and take short-term arbitrage opportunities. The speed advantage of HFTs imposes an adverse selection cost on other traders, making a market less liquid. A growing number of exchanges have adopted intentional delays to exogenously slow down HFTs and to protect liquidity providers against latency arbitrage. However, analogous to Chapter 1, my model shows that intentional delays have the crowding-in effect on speed acquisition by HFTs. Even though an exchange tries to slow down HFTs by exogenously imposing a delay on their transactions, HFTs may try to process information more quickly and move faster. As the crowding-in effect competes against the intended effect of intentional delays, the reaction of equilibrium market quality to the imposition of delays becomes ambiguous.

Chapter 3 considers the recent innovations in blockchain and decentralized exchanges. A growing number of exchanges are built on a decentralized information management system of the Ethereum blockchain, and they have implemented a novel market-making algorithm called Constant Product Market Makers (CPMM) to execute transactions. I consider the coexistence of a centralized exchange with the traditional order-book mechanism and a decentralized exchange with the CPMM. Informed and uninformed traders are endogenously differentiated between the traditional and the new market platforms and re-configure the informativeness of order flow on each exchange. The model demonstrates that liquidity on a decentralized exchange with the CPMM is positively associated with that on a centralized exchange.