Research
Working Papers
Student Loans and Social Mobility (my Job Market Paper) Revise & Resubmit at the Journal of Financial Economics [slides, AI-generated podcast (by NotebookLM)]
Abstract. Students from poor families invest much less in college education than rich families. To assess the role of finance and subsidy schemes, I estimate a model of college choice with financing frictions. I find that the college education gap is mainly due to heterogeneity in preparedness for college; frictionless access to student loans would substantially increase consumption during college but would only marginally affect the investment gap in college education. Making public colleges tuition-free would mitigate financing constraints, but overall it would entail more than $15B deadweight loss per year and would disproportionately benefit wealthier students. Expanding federal Pell grants, in contrast, would benefit lower-income students at a much lower cost.
In the news- Knowledge@Wharton: Why Making Public Colleges Tuition Free Won’t Close the Enrollment Gap
Who Benefits from Financial Development? The Interaction of Finance and Trade (with Hamid Firooz), Revise & Resubmit at American Economic Journal: Macroeconomics [slides]
previously titled "The Implications of Financial Frictions with International Trade Barriers"
Abstract. We document that finance-dependent industries benefit from financial development, but if and only if trade barriers are low. To explain this finding, we develop an international trade model featuring cross-country financial friction heterogeneity. Although product markets are competitive, production in finance-dependent sectors is supported by endogenous profit margins to prevent firms from making strategic defaults. We test this mechanism using cross-country firm-level ORBIS data. We further show that, because of profit shifting, a country may gain more (relative to the frictionless case) when trading with less financially developed economies, and a small open economy may not benefit from financial development.
How Do Income-Driven Repayment Plans Benefit Student Debt Borrowers? (with Sylvain Catherine and Constantine Yannelis)
Abstract. The rapid rise in student loan balances has raised concerns among economists and policymakers. Using administrative credit bureau data, we find that nearly half of the increase in balances from 2000 to 2020 is due to deferred payments, largely driven by the expansion of income-driven repayment (IDR) plans, which link payments to income. These plans help borrowers by smoothing consumption, insuring against labor income risk, and reducing the present value of future payments. We build a life-cycle model to quantify the welfare gains from this payment deferment and the channels through which borrower welfare increases. New, more generous IDR rules increase this transfers from taxpayers to borrowers without yielding net welfare gains. By lowering the average marginal cost of undergraduate debt to less than 50 cents per dollar, these rules may also incentivize excessive borrowing. We demonstrate that an optimally calibrated IDR plan can achieve similar welfare gains for borrowers at a much lower cost to taxpayers, and without encouraging additional borrowing, primarily through maturity extension.
Abstract. Matching and bargaining have significant welfare implications in financial markets. Using real-stakes experiments with US venture capitalists (VCs) and startups, alongside real-world portfolio data, we estimate a search-and-matching model with bargaining to examine payoffs from collaborations. Agents with predetermined appealing characteristics gain more bargaining power in equilibrium, leading to substantial variation in payoff splits across heterogeneous deals, ranging from 2:1 to 1:2 between a startup and a VC. Consequently, having smaller payoff shares offsets agents' benefits from collaborating with appealing counterparties. Overall, this paper highlights that bargaining is the key factor in determining agents' benefits from matching in entrepreneurial finance.
Abstract. Robustness checks are a standard feature of reduced-form empirical research. Because of computational costs of re-estimating alternative models, they are much less common in structural research using simulation-based methods. We propose a simple methodology to bypass this computational cost. Our approach is based on estimating a flexible approximation of the relation between moments and parameters. It provides a computationally cheap way to run the potentially large number of structural estimations required for such robustness checks. We demonstrate the validity and usefulness of this methodology in the context of two standard applications in economics and finance: (1) dynamic corporate finance (2) portfolio choice over the life cycle.
Abstract. We show that bank credit affects entrepreneurship, but only in low-income regions. We use a novel methodology to identify credit supply shock from regional demand shock using comprehensive data on small business loans between pairs of banks and counties in the US. While there is no impact in top income quartile counties, we document that a one std credit supply shock is associated with 1.6 and 1.7 percentage point employment and payroll growth in newborn firms in bottom income quartile counties. We show that this impact is long-lasting; is pronounced only in newborn firms; is not just a redistribution of labor from established to newborn firms; and does not follow with a reduction in labor productivity. We estimate that a credit redistribution of $100 from counties of above- to below-median income per capita results in $6.5 annual labor earnings in the aggregate.
Abstract. What is the social impact of the financial intermediation sector? I analyze the aggregate and the redistribution impact of financial intermediaries in an economy with a set of potential entrepreneurs. The intermediation sector endogenously develops to relax credit constraints by monitoring a borrowing entrepreneur. Competitive intermediaries i) eradicate non-fundamental-based income inequality by spreading economic opportunity to financially constrained individuals—the redistribution impact, and ii) boost entrepreneurship and restore the socially optimal occupational pattern—the job-creation impact. Although the job-creation impact is socially beneficial, the redistribution impact is not—social surplus declines overall due to a pecuniary externality associated with the redistribution function of the financial intermediation sector. Monopoly intermediation limits the redistribution impact and may raise the utilitarian welfare.
Work in Progress
More than Money: The Role of Inherited Preferences on Wealth Mobility (with Paolo Sodini)
Inequality with Free Higher Education (with Sepehr Ekbatani)
Publications
Aghamohammadi, Cina, Mehran Ebrahimian, and Hamed Tahmooresi. "Permutation approach, high frequency trading and variety of micro patterns in financial time series." Physica A: Statistical Mechanics and its Applications 413 (2014): 25-30.