UC Irvine

An OLG model where currency choices are endogenously driven by income heterogeneity is developed to analyze the simultaneous impact of a Central Bank Digital Currency (CBDC) on financial inclusion and bank funding. Pre-CBDC, wealthier agents use deposits while poorer agents use cash, remaining unbanked. CBDCs with higher fixed costs and interest rates are adopted by deposit holders and increase inclusion by raising deposit rates. CBDCs with lower fixed costs and interest rates are adopted by cash holders, directly increasing inclusion and inducing more favorable inclusion-intermediation trade-offs. A US calibration allows us to quantify these trade-offs conditional on CBDC design.We study the introduction of a central bank digital currency (CBDC) in a New Monetarist model where buyers are heterogeneous in their demand for liquidity and choose endogenously among cash, CBDC, and bank deposits. A CBDC that is competitive enough raises financial inclusion and lowers bank intermediation, through channels that depend on its design. We characterize the resulting inclusion-intermediation trade-off and show that a CBDC with a low fixed cost and a low interest rate improves it. We revisit the overlapping-generations model under the friction and environment of Lagos and Wright (2005), and show that the results do not hinge on its overlapping-generations structure.We designed an experimental setup to investigate the agency problem arising from performance-based contracts of asset managers, particularly hedge-fund managers. These contracts often limit managers' exposure to losses when making risky decisions on behalf of others. We conducted a multiple-price list experiment in which a decision-maker subject chose between lotteries on behalf of a receiver subject, with varying degrees of liability. Across a sample of the general population and a sample of finance professionals, risk-taking increases as liability decreases, and professionals take more risk than the general population in all treatments. Financial professionals appear both more risk-tolerant and less other-regarding.