| This dissertation comprises an essay on banking and an essay on market design. The first essay integrates ideas from prior work in banking and information economics in order to investigate the private and social incentives for investment in structured finance products, which were at the heart of the financial crisis of 2007-09. The second essay evaluates the performance of a market design innovation by Ticketmaster in the primary market for event tickets.;The first essay considers the efficiency of aggregate investment in opaque structured finance products in a general equilibrium model of banking. "Opaque" assets differ from "transparent" assets only in that, when depositors make withdrawal decisions, they know the returns on transparent assets, but not on opaque assets. Therefore transparency makes banks vulnerable to runs due to bad idiosyncratic shocks while opacity makes them vulnerable to bad aggregate shocks. The essay argues that equilibrium is inefficient due to fire sales in bad times. On the one hand, investment in opaque assets exacerbates these fire sales and thus creates a negative pecuniary externality by decreasing the provision of liquidity to depositors with liquidity requirements. On the other hand, since the fire sales result in a net transfer from opaque-asset banks to transparent-asset banks, there is a rent-seeking motive for investing in transparent assets. Unanticipated asset purchases by a planner in bad times are always welfare increasing. But anticipated asset purchases might be welfare decreasing when there is over-investment in opaque assets, implying a commitment problem for asset-purchase policies. Finally, the essay shows that pro-cyclical bailouts, which are equivalent to state-contingent interbank insurance contracts, are welfare improving.;In the second essay, Eric Budish and I note that economists have long been puzzled by event-ticket underpricing, which reduces revenue for the performer, and encourages socially wasteful rent-seeking by ticket brokers. What about using an auction to set price correctly? The essay studies the recent introduction of auctions into the event-ticket market by Ticketmaster. By combining primary-market data from Ticketmaster with secondary-market resale value data from eBay, we show that Ticketmaster's auctions "work": the auctions substantially improve price discovery, roughly double performer revenues, and, on average, nearly eliminate the arbitrage profits associated with underpriced tickets. The data thus suggest that auctions can eliminate the speculator rent-seeking that has been associated with this market since the 19th century, and that seems to have exploded in volume in the 21st century. |
