BIANCHI Milo

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We study banks' incentive to pool assets of heterogeneous quality when investors evaluate pools by extrapolating from limited sampling. Pooling assets of heterogeneous quality induces dispersion in investors' valuations without affecting their average. Prices are determined by market clearing assuming that investors can neither borrow nor short-sell. A monopolistic bank has the incentive to create heterogeneous bundles only when investors have enough money. When the number of banks is sufficiently large, oligopolistic banks choose extremely heterogeneous bundles, even when investors have little money and even if this turns out to be collectively detrimental to the banks. If, in addition, banks can originate low quality assets, even at a cost, this collective inefficiency is exacerbated and pure welfare losses arise. Robustness to the presence of rational investors and to the possibility of short-selling is discussed.

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In this dissertation, I study three topics in microeconomics: targeting, gambling, and retirement savings. The first chapter, based on joint work with Francis Bloch, examines an approach to targeting based on ranking by friends. A social planner aims to extract a ranking of individuals by asking each individual to rank their friends. We study how the structure of the community's social network determines the planner's ability to extract a truthful and effective ranking. Our analysis highlights the importance of common friends. The second chapter, based on joint work with Joshua Blumenstock, studies online sports betting, which has gained popularity in Kenya and other East African countries. We use a large dataset of sports betting transactions to provide evidence that gamblers can become overconfident in their ability to predict the outcome of games. We argue that overconfidence persists because gamblers overestimate how often their friends win and because gamblers overweight past successes relative to past failures. In the third and final chapter, I use a field experiment to study the impact of providing a retirement calculator on retirement savings to employees of a large South African company. The calculator provides retirement income projections and helps counter misperceptions of exponential growth. Although most employees are still saving at the minimum rate and the intervention was arranged to coincide with salary increases, the calculator did not result in significant increases in savings.

This thesis discusses the business of encouraging entrepreneurial and innovative activities. The first chapter examines and evaluates the private sector's response to public participation in venture capital. The second chapter investigates and estimates the performance gap between government and private venture capital funds and the determinants of this gap. The third chapter provides a theoretical framework for understanding and analyzing the motivation for firm-level innovation in industrial networks. In Chapter 1, titled "Can Governments Foster Venture Capital Development?", I examine the role of government intervention in the emergence of venture capital (VC) in China from 1999 to 2013, using a unique policy experiment and innovative data base. The statistical analysis, using the double-difference method, shows that the central government's program leads to an increase in local investment by both public and private VC funds. In Chapter 2, titled "(Under)performance of public venture capital: evidence and explanations," I use a sample from the same source as in Chapter 1, and find that startups backed by government VC funds are less likely to go public than private VC funds. The results indicate that the performance gap is reduced as the venture capital market moves to a more advanced stage. In Chapter 3, "Corporate Association under Imperfect Information along the Global Value Chain," (co-authored with Rui Zhang), we show the existence of multiple equilibria in which a supplier may be associated with different seats, but at different stages of the value chain. Our model also includes countervailing forces of firm innovation incentives and we predict a non-monotonic trend between innovation and firm productivity.

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Bundling assets of heterogeneous quality results in dispersed valuations when these are based on investor-specific samples from the pool. A monop olistic bank has the incentive to create heterogeneous bundles only when investors have enough money as in that case prices are driven by more opti- mistic valuations. When the number of banks is sufficiently large, oligopolistic banks choose extremely heterogeneous bundles even when investors have little money and even if this turns out to be collectively detrimental to the banks, which we refer to as a Bundler.

We match administrative panel data on portfolio choices with survey data on preferences over ambiguity. We show that ambiguity averse investors bear more risk, due to a lack of diversification. In particular, they exhibit a form of home bias that leads to higher exposure to the domestic relative to the international stock market. While more sensitive to market factors, their returns are on average higher, suggesting that ambiguity averse investors need not be driven out of the market for risky assets. We also show that these investors rebalance their portfolio more actively and in a contrarian direction relative to past market trends, which allow them to keep their risk exposure relatively constant over time. We discuss these findings in relation to the theoretical literature on portfolio choice under ambiguity.

We match administrative panel data on portfolio choices with survey data on preferences over ambiguity. We show that ambiguity averse investors bear more risk, due to a lack of diversification. In particular, they exhibit a form of home bias that leads to higher exposure to the domestic relative to the international stock market. While more sensitive to market factors, their returns are on average higher, suggesting that ambiguity averse investors need not be driven out of the market for risky assets. We also show that these investors rebalance their portfolio more actively and in a contrarian direction relative to past market trends, which allows them to keep their risk exposure relatively constant over time. We discuss these findings in relation to the theoretical literature on portfolio choice under ambiguity.

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We match administrative panel data on portfolio choices with survey measures of financial literacy. When we control for portfolio risk, the most literate households experience 0.4% higher annual returns than the least literate households. Distinct portfolio dynamics are the key determinant of this difference. More literate households hold riskier positions when expected returns are higher. They more actively rebalance their portfolios and do so in a way that holds their risk exposure relatively constant over time. They are more likely to buy assets that provide higher returns than the assets that they sell.

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The French abstract was not provided by the author.

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We model a financial market in which companies engage in strategic financial reporting knowing that investors only pay attention to a randomly drawn sample from firms' reports and extrapolate from this sample. We investigate the extent to which stock prices differ from the fundamental values, assuming that companies must report all their activities but are otherwise free to disaggregate their reports as they wish. We show that no matter how large the samples considered by investors are, a monopolist can induce a price of its stock bounded away from the fundamental. Besides, increasing the number of companies competing to attract investors may exacerbate the mispricing of stocks.

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We investigate the empirical relation between ambiguity aversion, risk aversion and portfolio choices. We match administrative panel data on portfolio choices with survey data on preferences over ambiguity and risk. We report three main findings. First, conditional on participation, ambiguity averse investors hold riskier portfolios. Second, they rebalance their portfolio in a contrarian direction relative to the market. Accordingly, their exposure to risk is more stable over time. Third, their portfolios experience higher returns, but they are also more sensitive to market trends. In several instances, the effects of ambiguity aversion stand in sharp contrast with those of risk aversion.

We explore which financial constraints matter the most in the choice of becoming an entrepreneur. We consider a randomly assigned welfare program in rural Mexico and show that cash transfers signi cantly increase entry into entrepreneurship. We then exploit the cross-household variation in the timing of these transfers and find that current occupational choices are significantly more responsive to the transfers expected for the future than to those currently received. Guided by a simple occupational choice model, we argue that the program has promoted entrepreneurship by enhancing the willingness to bear risk as opposed to simply relaxing current liquidity constraints.

We build a simple model of self-selection into migration and immigration policy determination. We first show that the effect of anyimmigration policy can be decomposed into a size and a compositioneffect. We then explore how the optimal policy may change once thelatter effect is considered.