This discussion piece argues that situations in which there are two similarly strong contestants (Symmetry) are often marked by long and expensive struggles for advantage and power. In contrast, an arrangement in which only one party gets access to all/most resources (Asymmetry) can minimize the cost/incidence of such struggles. For example, in their heydays, the Roman, Soviet, Habsburg, and Osman empires effectively reduced arms-races and armed conflict among their ethnic constituents. The Pax Romana was a powerful argument in favor of one-group dominance. The costliness of power struggles is determined both endogenous and exdogenously. For example, while minorities can spend resources to arm themselves, their ability to fight depends also on such factors as terrain, the effectiveness of available weapons, and their role as offender or defendor. I would argue that the Bosnian conflict was so costly precisely because the Bosnian terrain largely neutralized the arms advantage of the Serb faction. However, one should not take too narrow a view, because there are also forces making asymmetry more costly. Achieving or maintaining dominance (especially against forces/struggles from within-possibly among symmetrically similarly powerful lobbyists) can be expensive and distort incentives. Further, if dominance permits genocide, it may indeed occur. The potential exploitation of the loser may crystallize the opposition-indeed, there is a common notion that “oppression” and violations of “fairness” can lead to strong efforts by the weaker party. If the audience is to come away with any insights from this piece (and few of the arguments are really new), it is simply that helping a weaker party in the interest of “fairness” as the U.S. has done in the case of many of its interventions, can potentially escalate and prolong conflicts to the point where no intervention, or even intervention on the part of the stronger party’s side, would have been better for all parties involved.

This paper explains why seemingly irrational overconfident behavior can persist. Information aggregation is poor in groups in which most individuals herd. By ignoring the herd, the actions of overconfident individuals (“entrepreneurs”) convey their private information. However, entrepreneurs make mistakes and thus die more frequently. The socially optimal proportion of entrepreneurs trades off the positive information externality against high attrition rates of entrepreneurs, and depends on the size of the group, on the degree of overconfidence, and on the accuracy of individuals’ private information. The stationary distribution trades off the fitness of the group against the fitness of overconfident individuals.

In a randomized field experiment, I show that information architecture significantly affects individuals' spending and savings behavior. I present users of a large online account aggregation provider with a personalized financial index. This index represents the inflation-protected, lifetime monthly cash flow that they can obtain, given their personal financial and demographic information and current market prices. Users receiving this information tool reduce their spending by 10.7% relative to a control group. This effect is sensitive to the description of the index using a consumption frame rather than an investment frame and to the presentation of an explicit comparison between the index and historical spending levels. Further, spending reductions are primarily in large, infrequent transactions. This experiment is the first to directly affect overall spending behavior and to demonstrate the importance of information architecture in that context. It demonstrates the potential of low cost digital information tools to impact financial behavior on a large scale.

Our paper o�ers a minimalist model of a run on a financial market. The prime ingredient is that each risk-neutral investor fears having to liquidate after a run, but before prices can recover back to fundamental values. During the run, only the risk-averse market-making sector is willing to absorb shares. To avoid having to possibly liquidate shares at the marginal post-run price—in which case the market-making sector will already hold a lot of share inventory and thus be more reluctant to absorb additional shares—all investors may prefer selling their shares into the market today at the average run price, thereby causing the run itself. Consequently, stock prices are low and risk is allocated ineciently. Liquidity runs and crises are not caused by liquidity shocks per se, but by the fear of future liquidity shocks.

This dissertation consists of three chapters. In the first chapter, I investigate how political spending by corporations responds to regulatory concerns and if it is associated with improved firm value. Using the 2010 Deepwater Horizon disaster as an exogenous shock to the difficulty of obtaining offshore oil drilling permits, I show that offshore oil firms spent more money hiring lobbyists in order to influence the permitting process. In contrast, the evidence of a response through campaign contributions is weak. The lobbying spending was associated with both a higher probability of permit approval and faster time to approval. Permit approvals had a five-day cumulative abnormal return of 0.69% after the disaster. In particular, offshore firms hired more lobbyists with prior-employment connections to Congressmen or Federal agencies with oil industry oversight. My results show that corporate governance issues may be second-order in this setting and that lobbying may have a real impact on regulator decisions and a positive effect on firm value.

In the second chapter, I establish a previously unknown fact about the value of firms engaging in lobbying. Despite evidence that firms respond to specific opportunities or concerns through lobbying spending, most corporations lobby persistently. I show that firms engaging in lobbying spending earn higher returns relative to non-lobbying firms in response to elections that result in a unified government (White House and Congress controlled by the same political party). In contrast, lobbying firms earn lower returns relative to non-lobbying firms in response to elections that result in a divided government (White House and Congress controlled by different political parties, or Congressional division). The results show that the balance of power within the government has an effect on the cross-section of stock returns. Disentangling expected return and abnormal return explanations for these results is an interesting area for future research.

In the third chapter (with Ivo Welch), we investigate extended abnormal rates of return for S&P 500 index changes in a comprehensive 1979-2013 sample. The evidence suggests that the short-window portfolio announcement returns that did not revert in the 1980s have fully reverted in the 2000s. The reversion was a portfolio effect, not an individual stock effect.

We analyze incentive-efficient government bailouts within a canonical model of intra-firm moral hazard. Bailouts exacerbate the moral hazard of firms and managers in two ways. First, they make them less averse to failing. Second, the taxes to fund bailouts dampen their incentives. Nevertheless, if third-party externalities from keeping the firm alive are strong, bailouts can improve welfare. Our model suggests that governments should use bailouts sparingly, where social externalities are large and subsidies small; eliminate incumbent owners and managers to improve a priori incentives; and finance bailouts through redistributive taxes on productive firms instead of forcing recipients to repay in the future.