Research

Working Papers:

Concavity, stochastic utility and risk aversion
(with Robert Jarrow) | revised & resubmitted, finance and Stochastics, 2019B.
This paper studies the relation between concavity, stochastic or state dependent utility functions, and risk aversion. Using the common definition of risk aversion, but modified for state dependent preferences, we show that concavity does not imply risk aversion. Instead, it implies a weaker version of risk aversion, defined herein, and called risk aversion for independent gambles. Furthermore, to characterize the economic meaning of concavity, we define two new risk aversion notions, called uniform risk aversion and uniform risk aversion for independent gambles, respectively. We show that concavity is equivalent to uniform risk aversion for independent gambles, and that concavity plus some additional conditions are equivalent to uniform risk aversion.

Publications:

Endogenous Liquidity Risk and Dealer market Structure
(with Robert Jarrow) |Quarterly review of economics and finance, 2020, Accepted. 
​This paper derives the liquidity cost processes in a non-cooperative cost competition game among market makers and discusses its implication for the dealer market structure. The main result shows that there does not exist an equilibrium supporting both multiple market makers earning a strictly positive pro t and a well-behaved liquidity cost process (i.e. strictly increasing and convex) documented in the price impact literature. Henceforth, Bertrand price competition arises as an equilibrium phenomenon, which naturally leads to the dominance of cost-efficient market maker in the dealer market.
Random authority
(with Xi Weng) | iNTERNATIONAL ECONOMIC REVIEW, 2017, 58 (1), pp. 211-235.
This article rationalizes matrix management in a multi-project organization in which decisions must be adapted to local conditions but also coordinated with each other. Project managers are privately informed about local conditions and communicate strategically via cheap talk. Matrix management is modeled as a randomization over deterministic authority allocations. We show that random authority is strictly optimal when the conflict between adaptation and coordination is very severe or the coordination need is very small. Moreover, the optimal degree of delegation changes non-monotonically in the coordination need when the incentives of the project managers are sufficiently aligned.
PARTIAL CENTRALIZATION IN THREE-DIVISION ORGaNIZATIONS
(with Xi Weng) | NANKAI BUSINESS REVIEW INTERNATIONAL, 2014, 5 (2), pp. 187-210.
This paper takes an incomplete contract approach and uses an information transmission framework to investigate the optimal governance structure, in which non-contractible decisions must be adapted to local operating conditions, and also coordinated with the upstream and downstream divisions. Partial decentralization will arise as the optimal governance structure only when the information in the middle branch is relatively concentrated or disperse, so as to exploit the underlying information structure in the “chain” organizations. Specifically, when information is highly concentrated, direct control of the middle branch can improve coordination within firms. When the information is highly disperse, to delegate authority to the middle branch only can improve communication.

Publications in Chinese： 中文发表

interest conflicts, reputation effects and stock price efficiency  利益冲突、声誉激励与股价发现有效性
(with jin lin and mingshan zhou) | journal of management science in china 《管理科学学报》, 2015, 18 (12), pp. 1-17.
This paper constructs a two-period model of stock recommendations to investigate how the interaction between analysts’ incentive conflicts, analyst type uncertainty and market asymmetric information influence the stock price responsiveness. The results show that due to non-neutral incentive and reputation concerns regarding“ status identification”, strategic reporting behavior will arise for both affiliated and independent analysts respectively. Analysts’strategic reporting, which is driven by incentive conflicts and reputation concerns, together with investors’strategic interpretation, will lead to decreasing information quality and increasing stock price volatility. Our results are independent of the non-strategic player assumption, and we also find that categorical ranking systems will help to reduce stock market volatility. These results provide theoretical supports for policies such as improving analyst’compensation schedule, strengthening information disclosure, cultivating analyst’reputation market, establishing long-term tracking system and appropriating accountability system．

本文构建了分析师两期荐股模型，解析分析师和投资者的利益冲突、分析师类型不确定性和基本面的不对称信息三者相互作用并影响股价发现有效性的作用机制． 分析结果表明: 关联分析师方的“激励扭曲效应”源于其受利益相关方干扰后进行策略性荐股谋取私利; 独立分析师方的“声誉激励效应”源于其受远期市场上“身份识别”困扰等利他动机进行策略性荐股; 激励扭曲效应、声誉激励效应与价值投资者的策略性解读偏差共同导致分析师信息发现加工效率受损和股票市场有效性下降; 这一作用机制并不依赖于非策略性市场参与者假设; 常见的分级荐股方式有助于约束分析师的声誉激励并降低跨期效率损失． 这些结论为完善分析师薪酬考核机制、强化特定时点信息披露、分析师声誉市场培育、建立长效追踪制度和引入适当的长期责任承担制度提供了理论支撑．
A game analysis on Sme's group lending reputation model  中小企业联保贷款的模型分析
(with shiqing xie) | economic research journal 《经济研究》, 2011, 1, pp. 97-111.
Based on the examination of the reputation costs, group characteristics and operational environments of the Small and Medium Enterprises (SMEs), this paper constructs a group lending reputation model for the SMEs to analyze how banks could set up reputation costs to reduce credit risks by transforming the traditional loan-repayment games between banks and the SMEs into the reputation games among the SMEs themselves. This study concludes: valid reputation costs are the institutional foundations of the SMEs' group lending; reputation costs refer to the opportunity costs associated with the loss of privilege as a member conducting intra-group transactions due to default; the incentive conditions of banks endogenously define the market risk frontier; the group lending can extend the maximum market risk of bank loans; Under the multiple-player group lending, banks need to trade off between the benefits of expanding market risk limits and the shortcomings of increasing credit risks so as to determine the optimal member size of the multiple-player group lending.

本文在考察中小企业的违约信用成本、群体特点、经营环境的基础上,构建了一个中小企业联保贷款的信誉博弈分析框架,讨论了银行如何通过设置信誉成本将银行与企业之间的贷款—还款博弈转化为联保贷款成员企业之间的信誉博弈来降低信用风险的机制。研究结果表明:有效的信誉成本是开展中小企业联保贷款的制度基础;信誉成本主要体现为企业违约后丧失联保企业集团内部交易资格所引致的机会成本;银行的激励条件内生地决定了联保贷款的市场风险边界;银行在开展多元联保贷款时需要在拓展市场风险阈值和潜在信用风险之间进行权衡,以确定最佳的联保贷款成员规模。
An Economic Analysis of Trade Clearing in RMB between China and ASEAN  中国和东盟人民币贸易结算的经济学分析
(with shaorong li) | economic research journal 《经济研究》, 2010, 2, pp. 18-31.
This paper constructs a trade model of three entities to investigate the potential welfare effect of the forthcoming currency union between China and ASEAN on the world’s main economies from the perspective of reducing trading costs. Through analysis,we come to the following conclusions: Firstly,the currency union between China and ASEAN will improve the welfare of the main economies in the world; Secondly, ASEAN will experience a larger decline in trading loss and a higher growth in output owing to its lower overall technology level;What’s more,employing RMB in trade clearing between China and ASEAN is a Pareto improvement,because it satisfies the general principle of incentive compatibility for the main economies;Lastly,the superiority of the currency union lies in its geographic advantages and the similar production technologies employed by China and ASEAN.

本文构建了一个三经济体的贸易模型,从贸易损失的角度分析中国和东盟地区采用人民币进行贸易结算对中国和东盟,以及对世界其他主要经济体的福利影响.分析结果表明:中国和东盟地区结成货币联盟对世界主要经济体都将产生正面效应;由于东盟地区整体技术稍低,中国和东盟结成货币联盟将使东盟贸易损失下降更多和产出增加更大,从而提升东盟地区的整体福利;中国和东盟进行人民币结算对各经济体而言,属于帕累托改进,符合激励相容原则,具备理论上的可行性;中国和东盟进行货币联盟的优势在于两大经济体之间的地缘优势和生产技术类似.
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