PhD Candidate, Department of Economics

Contact Information

Department of Economics
Northwestern University
2211 Campus Drive, Evanston, IL 60208
Phone: 847-644-8764
nicolasinostroza2018@u.northwestern.edu

Curriculum Vitae

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Education

Ph.D., Economics, Northwestern University, 2019 (expected)
M.A., Economics, Northwestern University, 2019
M.A., Economics, University of Chile, 2013
B.S., Industrial Engineering, University of Chile, 2013.

Fields of Specialization

Primary: Financial Economics, Theory
Secondary: Industrial Organization

Job Market Paper

Persuading Multiple Audiences: Disclosure Policies, Capital Requirements, and Liquidity Provision

I investigate the optimal design of interventions to stabilize financial institutions under distress. A policy-maker facing the potential default of a bank discloses information about the long-term profitability of its assets and its short-run liquidity position to multiple audiences: short-term creditors, external investors, taxpayers, and the bank itself. I characterize the optimal comprehensive disclosure policy and show that when asset quality is above a threshold, the test assigns a single pass grade. In turn, when asset performance is poor, the test assigns one of multiple failing grades and complements that grade with a follow-up pass-fail test on the bank’s liquidity position. Additionally, the policy-maker imposes contingent capital requirements. I find that without the latter, disclosure of information may be ineffective. When the regulator lacks the technology to timely respond to liquidity shocks, she designs a liquidity-provision program whereby the government offers to buy assets from the bank in exchange of cash and a public disclosure of the bank’s liquidity position. Interventions display a non-monotone pecking order: the private sector funds banks with either high or poor-quality assets, while institutions with assets of intermediate performance participate in the government’s liquidity program. My results shed light on the optimal way to disclose information in environments with multiple audiences and multi-dimensional fundamentals.

Other Research Papers

Persuasion in Global Games with Application to Stress Testing (joint with A. Pavan) (Slides) (SupplementR&R American Economic Review

We study robust/adversarial information design in global games of regime change. We show that the optimal policy coordinates all market participants on the same course of action. Importantly, while it removes any “strategic uncertainty,” it preserves heterogeneity in “structural uncertainty”.  When the designer is constrained to public disclosures, we identify conditions under which the optimal policy is a “pass/fail” test, as well as conditions under which the test is monotone in the banks’ fundamentals. Finally, we show that the benefits from discriminatory disclosures come from “dividing-and-conquering” the market, and relate them to the type of securities issued by the banks.

Selling Securities under Distress (joint with  N. Figueroa) working paper

We revisit the question of how to sell securities to buyers endowed with private information, as in DeMarzo, Kremer, & Skrzypacz (2005). We consider a firm under distress that is forced to sell assets to improve its liquidity position.  The firm maximizes revenue and fully discounts future payoffs associated with the underlying assets. We do not impose any constraint neither on the type of securities, nor on the selling mechanism the firm may use. When buyers’ private signals are informative in the MLRP sense, the only type of contracts the seller offers are debt contracts with face values monotonically ordered in buyers’ types. Furthermore, the optimal auction of securities satisfies the same qualitative properties found in standard auction design. Namely, the optimal allocation rule features (i) no distortion at the top; (ii) binding downward, local incentive constraints; and (iii) no rents at the bottom. We then ask whether the seller benefits from disclosing information to potential buyers. When asymmetric information of the latter represents different levels of optimism regarding the future asset’s payoffs and not a technological advantage over other bidders, the seller commits to a full-disclosure policy.

 

References

Prof. Alessandro Pavan (Committee Chair)
Prof. Michael Fishman
Prof. Jeff Ely