Publications

Ten years after the Federal Reserve’s crisis-era bank stress test, it is time to recalibrate the stress tests for “peacetime.” Outside of a crisis, supervisors should tailor stress tests to focus on their comparative advantages by taking a macroprudential focus, with severe scenarios that enable them to learn about emerging risks in both traditional and shadow banking sectors. In peacetime, also, supervisors should emphasize risk- management practices and be wary of forcing rapid changes in capital levels for individual banks, while linking stress-test results with countercyclical capital buffers across the system.

The mere fact that consumers are targeted by advertisements can affect their inference about the expected utility of a product. We build a micromodel where multiple firms compete through targeted advertising. Consumers make inferences from targeted advertising about their potential match values for the product category, as well as the advertising firm’s unobserved quality. We show that in equilibrium, upon being targeted by a firm, consumers make more positive inferences about the product category and the firm’s quality. With such improved beliefs, a targeted consumer is more likely to engage in a costly search throughout the category. We find that the increase in consumer search creates an advertising spillover beyond the level of the mere awareness effects of advertising and that firms’ equilibrium level of targeted advertising can be nonmonotonic in targeting accuracy. Additionally, we show that sometimes it can be optimal for firms to relinquish customer data and instead engage in nontargeted advertising. The results provide insights into the tradeoffs between advertising reach and targeting accuracy.

The mere fact that consumers are targeted by advertisements can affect their in- ference about the expected utility of a product. We build a micromodel where multiple firms compete through targeted advertising. Consumers make inferences from targeted ad- vertising about their potential match values for the product category, as well as the adver- tising firm’s unobserved quality. We show that in equilibrium, upon being targeted by a firm, consumers make more positive inferences about the product category and the firm’s quality. With such improved beliefs, a targeted consumer is more likely to engage in a cost- ly search throughout the category. We find that the increase in consumer search creates an advertising spillover beyond the level of the mere awareness effects of advertising and that firms’ equilibrium level of targeted advertising can be nonmonotonic in targeting accuracy. Additionally, we show that sometimes it can be optimal for firms to relinquish customer data and instead engage in nontargeted advertising. The results provide insights into the tradeoffs between advertising reach and targeting accuracy.

The effect of changes in market interest rates on bank lending rates will depend on the regulatory
environment and the structure of banking markets. A new, consistent measure of the average
interest rate charged on new bank loans since the late 1930s shows a sharp change in the
behavior of bank business loan rates around 1970. Before that time, loan rates reacted only
sluggishly to changes in short-term market rates. By contrast, by the mid-1980s loan rates moved
essentially one-for-one with short-term market rates. The 1970s represent a transitional phase. I
explain the earlier muted response of loan rates to market rates as the result of an implicit
contract between banks and their borrowers that helped to smooth their profitability. This model
also shows how changes in the regulatory and banking environment, including the gradual
erosion of Regulation Q limits on deposit interest rates and increased access to short-term capital
markets by businesses between the late 1960s and the early 1980s undermined this implicit
contract, leading to loan pricing that followed market rates closely. A range of empirical and
narrative evidence from before, during, and after the change in loan rate behavior supports this
explanation.

Technological innovations are creating new products, services, and markets that satisfy enduring consumer needs. These technological innovations create value for consumers and firms in many ways, but they also disrupt psychological ownership––the feeling that a thing is “MINE.” The authors describe two key dimensions of this technology-driven evolution of consumption pertaining to psychological ownership: (1) replacing legal ownership of private goods with legal access rights to goods and services owned and used by others and (2) replacing “solid” material goods with “liquid” experiential goods. They propose that these consumption changes can have three effects on psychological ownership: they can threaten it, cause it to transfer to other targets, and create new opportunities to preserve it. These changes and their effects are organized in a framework and examined across three macro trends in marketing: (1) growth of the sharing economy, (2) digitization of goods and services, and (3) expansion of personal data. This psychological ownership framework generates future research opportunities and actionable marketing strategies for firms aiming to preserve the positive consequences of psychological ownership and navigate cases for which it is a liability.

University students have been particularly affected by the COVID-19 pandemic. We present results from the first wave of the Global COVID-19 Student Survey, which was administered at 28 universities in the United States, Spain, Australia, Sweden, Austria, Italy, and Mexico between April and October 2020. The survey addresses contemporaneous outcomes and future expectations regarding three fundamental aspects of students’ lives in the pandemic: the labor market, education, and health. We document the differential responses of students as a function of their country of residence, parental income, gender, and for the US their race.

Compensation of most US public school teachers is rigid and solely based on seniority. This paper studies the effects of a reform that gave school districts in Wisconsin full autonomy to redesign teacher pay schemes. Following the reform some districts switched to flex- ible compensation. Using the expiration of preexisting collective bargaining agreements as a source of exogenous variation in the timing of changes in pay, I show that the introduction of flexible pay raised salaries of high-quality teachers, increased teacher quality (due to the arrival of high-quality teachers from other dis- tricts and increased effort), and improved student achievement.

The moon landing just over 50 years ago is remembered as the culmination of a fierce competition between the United States and the USSR. But in fact, space exploration almost started with cooperation. President Kennedy proposed a joint mission to the moon when he met with Khrushchev in 1961 and again when he addressed the United Nations in 1963. It never came to pass, but in 1975 the Cold War rivals began working together on Apollo-Soyuz, and by 1998 the jointly managed International Space Station had ushered in an era of collaboration. Today a number of countries are trying to achieve a presence on the moon, and again there are calls for them to team up. Even the hypercompetitive Jeff Bezos and Elon Musk once met to discuss combining their Blue Origin and SpaceX ventures.

TIAA, originally founded in 1918 to provide first-rate financial services to employees of nonprofit organizations, has undergone a major transformation. Historically focused on higher education, TIAA faced intense competition from companies like Fidelity and Vanguard starting in the early 2000s, compelling it to expand its product offerings and increase its visibility through marketing. By 2021, under CEO Thasunda Brown Duckett, TIAA aimed to attract more diverse customers from the nonprofit sector, particularly underserved minorities, women, and early-career professionals, who had historically been less engaged with the firm's services.

These three groups present unique challenges. Underserved minorities often face a significant wealth and income gap, exacerbated by less favorable labor market experiences, higher levels of debt, and historical barriers to wealth accumulation, such as housing discrimination. Women, on average, tend to have lower earnings and more career interruptions, making it crucial for TIAA to tailor its products and messaging to meet their specific financial planning needs. Early-career professionals often prioritize immediate financial concerns over long-term retirement planning. This demographic is less familiar with TIAA, and many lack the financial knowledge to recognize the benefits of early retirement savings. How can TIAA overcome these challenges to attract members of these three groups?