UC San Diego

Chapter 1 contributes to the understanding of long-term relationships characterized by variable stakes and incomplete information through an analysis of a discrete-time trust game between a principal and agent with a continuum of types. The principal selects the project level in each period, and the agent decides whether to cooperate or betray, with payoffs scaling with the project level. The agent's benefit of betraying is privately known. A novel internal consistency condition for renegotiation is introduced, allowing for a comprehensive examination of equilibrium selection, with the principal assumed to have full power to alter it. The main result demonstrates convergence of perfect Bayesian equilibria as the period length approaches zero, with a closed-form solution provided. Cooperation remains viable across all type distributions, with the relationship starting small and gradually reaching maximum level.

Chapter 2 investigates the reputation-spillover phenomenon of venture capitalists (VCs) creating value for startups by attracting high-quality labor. I analyze a dynamic matching model between long-lived VCs with persistent but unknown abilities and short-lived workers with varying productivity, and characterize stable, positive assortative matching within each period, with a worker's wage potentially decreasing with productivity. Production technology determines the steady-state distribution by influencing the speed at which VCs build reputations.

Chapter 3 presents analysis of the borrowing-lending game where the borrower has private information about riskiness, and the bank starts small to learn about it. Empirical examination of model predictions using loan-level datasets from the U.S. Small Business Administration corroborates several findings. Repeated borrowers exhibit lower default rates, and default rates increase with the distance between borrower and lender. Repeated borrowers face lower interest rates initially but higher rates when refinancing. Economic downturns stall existing loans at a low level, and first-time borrowers secure larger loan amounts than repeat borrowers.